What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2022-11-08 · 716 added, 1100 removed, 1770 unchanged (51% of the section changed)

3 unchanged sentences

(dollars in millions except share data)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Fixed-maturity securities, available-for-sale, at fair value, net of allowance for credit loss of $ 69 and $ 65 (amortized cost of $ 7,359 and $ 7,707 )

7 unchanged sentences

Salvage and subrogation recoverable 258 257

Financial guaranty variable interest entities’ assets, at fair value 236 260

Financial guaranty variable interest entities’ assets (includes $ 413 and $ 413 , at fair value)

Assets of consolidated investment vehicles (includes $ 5,067 and $ 5,363 , at fair value)

Goodwill and other intangible assets 6 163

Assets held for sale 227 —

Other assets (includes $ 140 and $ 148 , at fair value)

6 unchanged sentences

Liabilities of consolidated investment vehicles (includes $ 4,352 and $ 4,431 , at fair value)

Liabilities held for sale 51 —

Other liabilities 402 457

1 unchanged sentence

Commitments and contingencies (Note 12)

Redeemable noncontrolling interests (Note 8)

Shareholders’ equity

3 unchanged sentences

Accumulated other comprehensive income (loss), net of tax of $( 69 ) and $( 84 )

( 420 ) ( 515 )

Deferred equity compensation 1 1

2 unchanged sentences

Total shareholders’ equity 5,415 5,292

Total liabilities, redeemable noncontrolling interests and shareholders’ equity $ 16,660 $ 18,208

Total liabilities and shareholders’ equity $ 16,778 $ 16,843

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(dollars in millions except share data)

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Net earned premiums $ 81 $ 214

9 unchanged sentences

Other income (loss)

( 1 ) 9 12 15

Total revenues 283 300

1 unchanged sentence

Interest expense 21 20

Loss on extinguishment of debt — 175 — 175

Amortization of deferred acquisition costs 3 4

9 unchanged sentences

Net income (loss) attributable to Assured Guaranty Ltd.

$ 11 $ 17 $ 30 $ 126

Earnings per share:

5 unchanged sentences

(in millions)

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Net income (loss) $ 97 $ 75

1 unchanged sentence

Investments with no credit impairment, net of tax provision (benefit) of $ 14 and $( 63 )

( 277 ) ( 66 ) ( 857 ) ( 134 )

Investments with credit impairment, net of tax provision (benefit) of $ 1 and $( 9 )

2 ( 6 ) ( 81 ) 12

Change in net unrealized gains (losses) on investments 94 ( 377 )

10 unchanged sentences

(dollars in millions, except share data)

For the Three Months Ended September 30, 2022

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

Common Shares Outstanding Common

Par Value Retained Earnings Accumulated

Comprehensive Income (Loss) Deferred

Equity Compensation Total Nonredeemable Noncontrolling Interests

Shareholders’ Equity

Balance at June 30, 2022 62,475,739 $ 1 $ 5,672 $ ( 370 ) $ 1 $ 5,304 $ 243 $ 5,547

Net income (loss) — — 11 — — 11 ( 6 ) 5

Dividends ( $ 0.25 per share)

— — ( 16 ) — — ( 16 ) — ( 16 )

Contributions — — — — — — 23 23

Common shares repurchases ( 1,790,395 ) — ( 97 ) — — ( 97 ) — ( 97 )

Share-based compensation 34,087 — 9 — — 9 — 9

Distributions — — — — — — ( 36 ) ( 36 )

Other comprehensive loss — — — ( 282 ) — ( 282 ) — ( 282 )

Balance at September 30, 2022 60,719,431 $ 1 $ 5,579 $ ( 652 ) $ 1 $ 4,929 $ 224 $ 5,153

For the Three Months Ended September 30, 2021

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

Common Shares Outstanding Common

Par Value Retained Earnings Accumulated

Comprehensive Income (Loss) Deferred

Equity Compensation Total Nonredeemable Noncontrolling Interests

Shareholders’ Equity

Balance at June 30, 2021 74,112,554 $ 1 $ 6,056 $ 445 $ 1 $ 6,503 $ 49 $ 6,552

Net income — — 17 — — 17 3 20

Dividends ($ 0.22 per share)

— — ( 16 ) — — ( 16 ) — ( 16 )

Contributions — — — — — — 25 25

Common shares repurchases ( 2,918,993 ) — ( 140 ) — — ( 140 ) — ( 140 )

Share-based compensation 48,379 — 7 — — 7 — 7

Distributions — — — — — — ( 2 ) ( 2 )

Other comprehensive loss — — — ( 71 ) — ( 71 ) — ( 71 )

Balance at September 30, 2021 71,241,940 $ 1 $ 5,924 $ 374 $ 1 $ 6,300 $ 75 $ 6,375

Assured Guaranty Ltd.

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) - (Continued)

(dollars in millions, except share data)

For the Nine Months Ended September 30, 2022

For the Three Months Ended March 31, 2023

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

4 unchanged sentences

Shareholders’ Equity

Balance at December 31, 2021 67,518,424 $ 1 $ 5,990 $ 300 $ 1 $ 6,292 $ 186 $ 6,478

As of December 31, 2022 59,013,040 $ 1 $ 5,577 $ ( 515 ) $ 1 $ 5,064 $ 228 $ 5,292

Net income — — 81 — — 81 16 97

5 unchanged sentences

Distributions — — — — — — ( 52 ) ( 52 )

Other comprehensive loss — — ( 952 ) — ( 952 ) — ( 952 )

Balance at September 30, 2022 60,719,431 $ 1 $ 5,579 $ ( 652 ) $ 1 $ 4,929 $ 224 $ 5,153

For the Nine Months Ended September 30, 2021

Other comprehensive income — — — 95 — 95 — 95

As of March 31, 2023 59,274,112 $ 1 $ 5,638 $ ( 420 ) $ 1 $ 5,220 $ 195 $ 5,415

For the Three Months Ended March 31, 2022

Shareholders’ Equity Attributable to Assured Guaranty Ltd.

4 unchanged sentences

Shareholders’ Equity

Balance at December 31, 2020 77,546,896 $ 1 $ 6,143 $ 498 $ 1 $ 6,643 $ 41 $ 6,684

As of December 31, 2021 67,518,424 $ 1 $ 5,990 $ 300 $ 1 $ 6,292 $ 186 $ 6,478

Net income — — 66 — — 66 10 76

6 unchanged sentences

Other comprehensive loss — — — ( 378 ) — ( 378 ) — ( 378 )

Balance at September 30, 2021 71,241,940 $ 1 $ 5,924 $ 374 $ 1 $ 6,300 $ 75 $ 6,375

As of March 31, 2022 65,043,547 $ 1 $ 5,878 $ ( 78 ) $ 1 $ 5,802 $ 193 $ 5,995

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(in millions)

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash flows provided by (used in) operating activities $ 312 $ ( 892 )

2 unchanged sentences

Purchases ( 225 ) ( 68 )

Sales 560 222

Maturities and paydowns 129 179

3 unchanged sentences

Net sales (purchases) of short-term investments with original maturities of less than three months ( 460 ) 656

Sales of fixed-maturity securities, trading 121 —

Paydowns of financial guaranty variable interest entities’ assets 7 18

Purchases of other invested assets ( 10 ) ( 5 )

Return of capital from and sales of other invested assets 35 61

Sales and return of capital of other invested assets 5 31

Other ( 1 ) ( 1 )

4 unchanged sentences

Net paydowns of financial guaranty variable interest entities’ liabilities ( 9 ) ( 41 )

Issuance of long-term debt, net of issuance costs — 889

Redemptions and purchases of debt, including make-whole — ( 620 )

Other ( 15 ) ( 10 )

4 unchanged sentences

Repayment of warehouse financing debt ( 152 ) —

Borrowings under credit facilities 46 —

Borrowing (payment) under credit facilities ( 30 ) ( 1 )

Contributions from noncontrolling interests to consolidated investment vehicles — 3

9 unchanged sentences

(in millions)

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental cash flow information

Income taxes paid (received) $ 97 $ 1

Interest paid on long-term debt $ 10 $ 9

Supplemental disclosure of non-cash activities:

Puerto Rico Plan Consideration (see Note 3)

Fixed-maturity securities, available-for-sale, received as salvage $ 1 $ 610

5 unchanged sentences

Distributions to noncontrolling interests 3 2

September 30, 2022 September 30, 2021

March 31, 2023 March 31, 2022

Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets:

1 unchanged sentence

Restricted cash (included in other assets) — 12

Cash and cash equivalents of consolidated investment vehicles (Note 8)

Cash and cash equivalents of consolidated investment vehicles (See Note 8)

Cash (included in assets held for sale) 25 —

Cash and cash equivalents and restricted cash at the end of period $ 130 $ 289

4 unchanged sentences

Assured Guaranty Ltd.

(AGL and, together with its subsidiaries, Assured Guaranty or the Company) is a Bermuda-based holding company that provides, through its operating subsidiaries, credit protection products to the United States (U.S.) and international public finance (including infrastructure) and structured finance markets, as well as asset management services.

public finance (including infrastructure) and structured finance markets, as well as asset management services.

Through its insurance subsidiaries, the Company applies its credit underwriting judgment, risk management skills and capital markets experience primarily to offer financial guaranty insurance that protects holders of debt instruments and other monetary obligations from defaults in scheduled payments.

4 unchanged sentences

The Company also provides specialty insurance and reinsurance on transactions with risk profiles similar to those of its structured finance exposures written in financial guaranty form.

Through Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM), the Company significantly increased its participation in the asset management business with the completion on October 1, 2019, of its acquisition of all of the outstanding equity interests in BlueMountain Capital Management, LLC (BlueMountain, now known as Assured Investment Management LLC) and its associated entities.

AssuredIM is a diversified asset manager that serves as investment advisor to collateralized loan obligations (CLOs), opportunity and liquid strategy funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down.

Through Assured Investment Management LLC (AssuredIM LLC) and its investment management affiliates (together with AssuredIM LLC, AssuredIM), the Company serves as investment advisor to collateralized loan obligations (CLOs) and opportunity funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down.

AssuredIM has managed structured and public finance, credit and special situation investments since 2003.

AssuredIM provides investment advisory services while leveraging a technology-enabled risk platform, which aims to maximize returns for its clients.

Transaction with Sound Point

On April 5, 2023, Assured Guaranty entered into a transaction agreement (Transaction Agreement) pursuant to which it agreed to contribute to Sound Point Capital Management, LP (Sound Point) most of its asset management business, other than that conducted by Assured Healthcare Partners LLC (AssuredIM Contributed Business).

In addition, AGM and AGC (U.S.

Insurance Subsidiaries) entered into a letter agreement (Letter Agreement) pursuant to which they agreed that, after the closing of the transactions contemplated by the Transaction Agreement, they would (a) engage Sound Point as their sole alternative credit manager, (b) transition to Sound Point the management of certain existing alternative investments and related commitments, and (c) subject to regulatory approval, over time make new investments in funds, other vehicles and separately managed accounts managed by Sound Point which, when aggregated with the transitioned alternative investments and commitments, will total $ 1 billion.

See Note 7, Investments.

Assured Guaranty will receive, subject to certain potential post-closing adjustments, common interests in Sound Point representing a 30 % participation percentage in Sound Point, and certain other interests in related Sound Point entities (the transactions contemplated under the Transaction Agreement and the Letter Agreement, the Sound Point Transaction).

The Sound Point Transaction is expected to be completed in the third quarter of 2023, subject to certain customary closing conditions, including the receipt of certain consents and regulatory approval.

Assets and Liabilities Held For Sale

As of March 31, 2023, the AssuredIM assets and liabilities subject to the Transaction Agreement were classified as held for sale.

Separately, Assured Guaranty has committed to a plan to sell the remaining AssuredIM operating entities associated with its healthcare strategy, and not part of the Sound Point Transaction, including Assured Healthcare Partners LLC, and has also classified those assets and liabilities as held for sale.

The results of all of the AssuredIM entities that are classified as held for sale are reported in the Asset Management segment.

See Note 2, Segment Information.

In addition, the Company designated certain other assets and liabilities supporting the Insurance segment as held for sale in the first quarter of 2023.

The disposal group consisting of the assets and liabilities classified as held for sale is measured at the lower of carrying amount or fair value less any costs associated with the transaction.

The Company assessed the disposal group for impairment and determined no impairment existed as of March 31, 2023.

Upon classification of the disposal group as held for sale, the Company ceased amortizing held for sale intangibles.

Each of the components held for sale will be accounted for as dispositions of businesses.

The Company is still evaluating the effect that the Sound Point Transaction, and the expected sales

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

of the remaining assets and liabilities held for sale, will have in the period in which the transactions are consummated, which is expected to be in the third quarter of 2023.

The table below shows the components of assets and liabilities held for sale.

Assets and Liabilities Held For Sale

As of March 31, 2023

(in millions)

Short-term investments $ 1

Goodwill and other intangible assets 155

Deferred tax assets 5

Total assets held for sale $ 227

Other liabilities $ 51

Total liabilities held for sale $ 51

Revenues and expenses attributable to all businesses held for sale relate primarily to the AssuredIM entities in the asset management segment, which results are presented in Note 2, Segment Information.

Substantially all of the entities in the asset management segment are held for sale.

Once the Company executes the Sound Point Transaction and the sales of its held for sale businesses, which are expected to occur in the third quarter of 2023, the Company expects to deconsolidate the corresponding AssuredIM and other entities.

The Company will account for its investment in Sound Point as an equity method investment.

As of March 31, 2023, the effect of deconsolidating all the CIVs would have been a reduction in assets of $ 4,668 million, a reduction in liabilities of $ 4,458 million, and a reduction in non-controlling interests of $ 195 million.

Basis of Presentation

3 unchanged sentences

Actual results could differ from those estimates.

As discussed in Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, the nine month period ended September 30, 2022 include two out-of period adjustments, totaling $ 6.9 million in net income attributable to AGL.

Management has determined these misstatements are not material to prior periods or to the financial statements taken as a whole.

These unaudited interim condensed consolidated financial statements are as of September 30, 2022 and cover the three-month period ended September 30, 2022 (third quarter 2022), the three-month period ended September 30, 2021 (third quarter 2021), the nine-month period ended September 30, 2022 (nine months 2022) and the nine-month period ended September 30, 2021 (nine months 2021).

These unaudited interim condensed consolidated financial statements are as of March 31, 2023 and cover the three-month period ended March 31, 2023 (first quarter 2023) and the three-month period ended March 31, 2022 (first quarter 2022).

Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but is not required for interim reporting purposes, has been condensed or omitted.

The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

Certain prior year balances have been reclassified to conform to the current year’s presentation.

The unaudited interim condensed consolidated financial statements include the accounts of AGL, its direct and indirect subsidiaries, and its consolidated financial guaranty VIEs (FG VIEs) and consolidated investment vehicles (CIVs).

Certain prior year balances have been reclassified to conform to the current period’s presentation, except for assets and liabilities held for sale as described above.

The unaudited interim condensed consolidated financial statements include the accounts of AGL, its direct and indirect subsidiaries, and its consolidated financial guaranty VIEs (FG VIEs) and CIVs.

See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

1 unchanged sentence

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes to Condensed Consolidated Financial Statements (Unaudited)

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the U.S.

15 unchanged sentences

• Assured Healthcare Partners LLC, organized in Delaware.

Until April 1, 2021, Municipal Assurance Corp.

(MAC) was also a principal insurance subsidiary domiciled in New York.

On April 1, 2021, MAC was merged with and into AGM, with AGM as the surviving company.

As a result, the Company wrote-off the $ 16 million carrying value of MAC’s insurance licenses in the first quarter of 2021, which was recorded in other operating expenses in the Insurance segment.

AGM, AGC and, until its merger with AGM on April 1, 2021, MAC, (collectively, the U.S.

AGM and AGC (collectively, the U.S.

Insurance Subsidiaries), jointly own an investment subsidiary, AG Asset Strategies LLC (AGAS), which invests in funds managed by AssuredIM (AssuredIM Funds).

1 unchanged sentence

(AGUS) and Assured Guaranty Municipal Holdings Inc.

(AGMH) (collectively, the U.S.

(AGMH and, together with AGUS, the U.S.

Holding Companies) - have public debt outstanding.

Recent Accounting Standards Adopted

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

This ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this ASU only apply to contracts that reference the London Interbank Offered Rate (LIBOR) or another reference rate that is expected to be discontinued due to reference rate reform.

This ASU became effective upon issuance and may be applied prospectively for contract modifications that occur from March 12, 2020 through December 31, 2022 (the Reference Rate Transition Period).

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

Scope , which clarifies the scope of relief related to ASU 2020-04.

This ASU became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively for contract modifications made on or before December 31, 2022.

The Company adopted the optional relief afforded by these ASUs in the third quarter of 2021 on a prospective basis, and the guidance will be followed until the optional relief terminates on December 31, 2022.

The Company has identified insurance contracts, derivatives and other financial instruments that are directly or indirectly influenced by LIBOR, and will be applying the accounting relief as relevant contract modifications are made during the Reference Rate Transition Period.

There was no impact to the Company’s consolidated financial statements upon the initial adoption of these ASUs.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Recent Accounting Standards Not Yet Adopted

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued ASU 2018-12, Financial Services - Insurance (Topic 944):

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-12, Financial Services - Insurance (Topic 944):

Targeted Improvements to the Accounting for Long-Duration Contracts .

The amendments in this ASU:

• improve the timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows,

• simplify and improve the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts,

• simplify the amortization of deferred acquisition costs (DAC), and

• improve the effectiveness of the required disclosures.

This ASU does not affect the Company’s financial guaranty insurance contracts, but may affect its accounting for certain specialty (non-financial guaranty) insurance contracts.

In November 2020, the FASB deferred the effective date of this ASU to January 1, 2023 with early adoption permitted.

If early adoption is elected, there is transition relief allowing for the transition date to be either the beginning of the prior period presented or the beginning of the earliest period presented.

If early adoption is not elected, the transition date is required to be the beginning of the earliest period presented.

The Company does not currently expect this ASU to have a material effect on its consolidated financial statements.

The Company’s adoption of this ASU on January 1, 2023 did not have any effect on the Company’s consolidated financial statements.

Segment Information

11 unchanged sentences

See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

The segments differ from the consolidated financial statements in certain respects.

The segment results differ from the consolidated financial statements in certain respects.

The Insurance segment includes:

2 unchanged sentences

and (ii) AGAS’ share of earnings from investments in AssuredIM Funds in “equity in earnings (losses) of investees.” Under GAAP, (i) FG VIEs are consolidated by the U.S.

Insurance Subsidiaries and the premiums and losses associated with their financial guaranty policies associated with the FG VIEs’ debt are eliminated, whereas the reconciliation tables below present the FG VIEs and related eliminations in “Other”, and (ii) CIVs are consolidated by AGUS, a U.S.

holding company, whereas in the reconciliation tables below, the CIVs and related eliminations of the Insurance segment’s “equity in earnings (losses) of investees” associated with AGAS’ interest in CIVs are presented in “Other.” In addition, under GAAP, reimbursable fund expenses are shown as a component of asset management fees and included in total revenues, whereas in the Asset Management segment in the tables below, they are netted in “segment expenses”.

Insurance Subsidiaries and the premiums and losses associated with the financial guaranty policies associated with the FG VIEs’ debt are eliminated, whereas

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

the reconciliation tables below present the FG VIEs and related eliminations in “other”, and (ii) CIVs are consolidated by AGUS, whereas in the reconciliation tables below, the CIVs and related eliminations of the Insurance segment’s “equity in earnings (losses) of investees” associated with AGAS’ interest in CIVs are presented in “other.” In addition, under GAAP, reimbursable fund expenses are shown as a component of asset management fees and included in total revenues, whereas in the Asset Management segment in the tables below, they are netted in “segment expenses”.

The Company analyzes the operating performance of each segment using “segment adjusted operating income (loss).” Results for each segment include specifically identifiable expenses as well as intersegment expense allocations, as applicable, based on time studies and other cost allocation methodologies based on headcount or other metrics.

1 unchanged sentence

• Elimination of realized gains (losses) on the Company’s investments, except for gains and losses on securities classified as trading.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

• Elimination of non-credit impairment-related unrealized fair value gains (losses) on credit derivatives that are recognized in net income, which is the amount of unrealized fair value gains (losses) in excess of the present value of the expected estimated economic credit losses, and non-economic payments.

2 unchanged sentences

• Elimination of the tax effects related to the above adjustments, which are determined by applying the statutory tax rate in each of the jurisdictions that generate these adjustments.

The Company does not report assets by reportable segment as the CODM does not use assets to assess performance and allocate resources.

The Company does not report assets by reportable segment as the CODM does not assess performance and allocate resources based on assets.

The following table presents information for the Company’s operating segments.

1 unchanged sentence

Segment Information

Third Quarter

Insurance Asset Management Insurance Asset Management

(in millions)

Third-party revenues $ 145 $ 13 $ 187 $ 17

Intersegment revenues 2 8 3 2

Segment revenues 147 21 190 19

Segment expenses ( 16 ) 24 ( 22 ) 29

Segment equity in earnings (losses) of investees ( 11 ) — 33 —

Segment provision (benefit) for income taxes ( 7 ) — 31 ( 3 )

Segment adjusted operating income (loss) $ 159 $ ( 3 ) $ 214 $ ( 7 )

Three Months Ended March 31,

Insurance Asset Management Insurance Asset Management

7 unchanged sentences

Segment adjusted operating income (loss) $ 117 $ ( 1 ) $ 133 $ —

The tables below present a reconciliation of significant components of segment information to the comparable consolidated amounts.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Reconciliation of Segment Information to Consolidated Information

Three Months Ended September 30, 2022

Equity in Earnings (Losses) of Investees Less:

Net Income (Loss) Attributable to AGL

Revenues Expenses Provision (Benefit) for Income Taxes Noncontrolling Interests

(in millions)

Insurance $ 147 $ ( 16 ) $ ( 11 ) $ ( 7 ) $ — $ 159

Asset Management 21 24 — — — ( 3 )

Total segments 168 8 ( 11 ) ( 7 ) — 156

Corporate division 1 34 — ( 3 ) — ( 30 )

Other 13 2 ( 9 ) 1 ( 6 ) 7

Subtotal 182 44 ( 20 ) ( 9 ) ( 6 ) 133

Reconciling items:

Realized gains (losses) on investments ( 14 ) — — — — ( 14 )

Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives ( 50 ) ( 1 ) — — — ( 49 )

Fair value gains (losses) on CCS 1 — — — — 1

Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves ( 78 ) — — — — ( 78 )

Tax effect — — — ( 18 ) — 18

Total consolidated $ 41 $ 43 $ ( 20 ) $ ( 27 ) $ ( 6 ) $ 11

Notes to Condensed Consolidated Financial Statements (Unaudited)

The tables below present a reconciliation of significant components of segment information to the comparable consolidated amounts.

Reconciliation of Segment Information to Consolidated Information

Three Months Ended September 30, 2021

First Quarter 2023

Equity in Earnings (Losses) of Investees Less:

16 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Reconciliation of Segment Information to Consolidated Information

Nine Months Ended September 30, 2022

Equity in Earnings (Losses) of Investees Less:

Net Income (Loss) Attributable to AGL

Revenues Expenses Provision (Benefit) for Income Taxes Noncontrolling Interests

(in millions)

Insurance $ 564 $ 147 $ ( 46 ) $ 24 $ — $ 347

Asset Management 88 91 — — — ( 3 )

Total segments 652 238 ( 46 ) 24 — 344

Corporate division 3 104 — ( 3 ) — ( 98 )

Other 34 14 15 3 25 7

Subtotal 689 356 ( 31 ) 24 25 253

Reconciling items:

Realized gains (losses) on investments ( 39 ) — — — — ( 39 )

Non-credit impairment-related unrealized fair value gains (losses) on credit derivatives ( 51 ) ( 5 ) — — — ( 46 )

Fair value gains (losses) on CCS 12 — — — 12

Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves ( 180 ) — — — — ( 180 )

Tax effect — — — ( 30 ) — 30

Total consolidated $ 431 $ 351 $ ( 31 ) $ ( 6 ) $ 25 $ 30

Notes to Condensed Consolidated Financial Statements (Unaudited)

Reconciliation of Segment Information to Consolidated Information

Nine Months Ended September 30, 2021

First Quarter 2022

Equity in Earnings (Losses) of Investees Less:

15 unchanged sentences

Total consolidated $ 300 $ 196 $ ( 11 ) $ 18 $ 9 $ 66

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Outstanding Exposure

The Company sells credit protection primarily in financial guaranty insurance form.

Until 2009, the Company also sold credit protection by issuing policies that guaranteed payment obligations under credit default swaps (CDS).

The Company may also sell credit protection by issuing policies that guarantee payment obligations under credit default swaps (CDS).

The Company’s contracts accounted for as credit derivatives are generally structured such that the circumstances giving rise to the Company’s obligation to make loss payments are similar to those for its financial guaranty insurance contracts.

The Company has not entered into any new CDS in order to sell credit protection in the U.S.

since the beginning of 2009, when regulatory guidelines were issued that limited the terms under which such protection could be sold.

The capital and margin requirements applicable under the Dodd-Frank Wall Street Reform and Consumer Protection Act also contributed to the Company not entering into such new CDS in the U.S.

since the beginning of 2009, when regulatory guidelines were issued that limited the terms under which such protection could be sold by its U.S.

Insurance Subsidiaries.

The Company has, however, acquired or reinsured portfolios since 2009 that include financial guaranty contracts in credit derivative form.

The Company seeks to limit its exposure to losses by underwriting obligations that it views to be investment grade at inception, although on occasion it may underwrite new issuances that it views to be below-investment-grade (BIG), typically as part of its loss mitigation strategy for existing troubled exposures.

The Company also seeks to acquire portfolios of insurance from financial guarantors that are no longer writing new business by acquiring such companies, providing reinsurance on a portfolio of insurance or reassuming a portfolio of reinsurance it had previously ceded;

The Company also seeks to acquire portfolios of insurance from financial guarantors that are no longer writing new business by acquiring such companies or providing reinsurance on a portfolio of insurance;

in such instances, it evaluates the risk characteristics of the target portfolio, which may include some BIG exposures, as a whole in the context of the proposed transaction.

4 unchanged sentences

The Company includes within public finance obligations those obligations backed by the cash flow from leases or other revenues from projects serving substantial public purposes, including utilities, toll roads, healthcare facilities and government office buildings.

The Company also includes within public finance obligations similar obligations issued by territorial and non-U.S.

The Company also includes within public finance obligations similar obligations issued by U.S.

sovereign and sub-sovereign issuers and governmental authorities.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Structured finance obligations insured by the Company are generally issued by special purpose entities, including VIEs, and backed by pools of assets having an ascertainable cash flow or market value or other specialized financial obligations.

1 unchanged sentence

Unless otherwise specified, the outstanding par and debt service amounts presented in this note include outstanding exposures on these VIEs whether or not they are consolidated.

The Company also writes specialty insurance and reinsurance that is consistent with its risk profile and benefits from its underwriting experience and other types of financial guarantees not subject to insurance accounting guidance.

The Company also writes specialty business that is consistent with its risk profile and benefits from its underwriting experience and other types of financial guaranties.

Surveillance Categories

6 unchanged sentences

The Company monitors its insured portfolio and refreshes its internal credit ratings on individual exposures in quarterly, semi-annual or annual cycles based on the Company’s view of the exposure’s credit quality, loss potential, volatility and sector.

Ratings on exposures in sectors identified as under the most stress or with the most potential volatility are reviewed

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

every quarter, although the Company may also review a rating in response to developments impacting a credit when a ratings review is not scheduled.

Ratings on exposures in sectors identified as under the most stress or with the most potential volatility are reviewed every quarter, although the Company may also review a rating in response to developments impacting a credit when a ratings review is not scheduled.

For assumed exposures, the Company may use the ceding company’s credit ratings of transactions where it is impractical for it to assign its own rating.

2 unchanged sentences

Surveillance personnel then assign each BIG transaction to one of the three BIG surveillance categories described below based upon whether a future loss is expected and whether a claim has been paid.

The Company uses the tax-equivalent yield of the relevant subsidiary’s investment portfolio to calculate the present value of projected payments and recoveries and determine whether a future loss is expected in order to assign the appropriate BIG surveillance category to a transaction.

The Company uses the pre-tax book yield of the relevant subsidiary’s investment portfolio to calculate the present value of projected payments and recoveries and determine whether a future loss is expected in order to assign the appropriate BIG surveillance category to a transaction.

For financial statement measurement purposes, the Company uses risk-free rates, which are determined each quarter, to calculate the expected loss.

8 unchanged sentences

Below-investment-grade transactions for which future losses are expected and on which claims (other than liquidity claims) have been paid.

Impact of COVID-19 Pandemic

The emergence and continuation of COVID-19 and reactions to it, including various intermittent closures and capacity and travel restrictions, have had a profound effect on the global economy and financial markets.

The ultimate size, depth, course and duration of the pandemic, and the effectiveness, acceptance, and distribution of vaccines and therapeutics for it, remain unknown, and the governmental and private responses to the pandemic continue to evolve.

Due to the nature of the Company’s business, COVID-19 and its global impact, directly and indirectly affected certain sectors in the insured portfolio.

Shortly after the pandemic reached the U.S.

through early 2021 the Company’s surveillance department conducted supplemental periodic surveillance procedures to monitor the impact on its insured portfolio of COVID-19 and governmental and private responses to COVID-19, with emphasis on state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls, as well as obligations supported by revenue streams most impacted by various intermittent closures and capacity and travel restrictions or an economic downturn.

Given significant federal funding to state and local governments in 2021 and the performance it observed, the Company’s surveillance department has reduced these supplemental procedures.

However, the Company is still monitoring those sectors it identified as most at risk for any developments related to COVID-19.

The Company has paid only relatively small insurance claims it believes are due at least in part to credit stress arising specifically from COVID-19, and has already received reimbursement for most of those claims.

Financial Guaranty Exposure

The Company measures its financial guaranty exposure in terms of (i) gross and net par outstanding and (ii) gross and net debt service.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company typically guarantees the payment of debt service when due.

4 unchanged sentences

Foreign denominated par outstanding is translated at the spot rate at the end of the reporting period.

The Company has, from time to time, purchased securities that it has insured, and for which it had expected losses to be paid (loss mitigation securities), in order to mitigate the economic effect of insured losses.

The Company excludes amounts

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

attributable to loss mitigation securities from par and debt service outstanding, and instead reports loss mitigation securities in the investment portfolio, because the Company manages such securities as investments and not insurance exposure.

As of both September 30, 2022 and December 31, 2021, the Company excluded from net par outstanding $ 1.3 billion attributable to loss mitigation securities.

The Company has, from time to time, purchased securities that it has insured, and for which it had expected losses to be paid, in order to mitigate the economic effect of insured losses (Loss Mitigation Securities).

The Company excludes amounts attributable to Loss Mitigation Securities from par and debt service outstanding and instead reports Loss Mitigation Securities in the investment portfolio because the Company manages such securities as investments and not insurance exposure.

As of both March 31, 2023 and December 31, 2022, the Company excluded from net par outstanding $ 1.3 billion attributable to Loss Mitigation Securities.

Gross debt service outstanding represents the sum of all estimated future debt service payments on the insured obligations, on an undiscounted basis.

8 unchanged sentences

dollar denominated insured obligations and other factors.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Financial Guaranty Portfolio

Debt Service and Par Outstanding

As of September 30, 2022 As of December 31, 2021

As of March 31, 2023 As of December 31, 2022

Gross Net Gross Net

7 unchanged sentences

Total financial guaranty $ 236,565 $ 236,383 $ 233,438 $ 233,258

In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $ 893 million of public finance direct gross par and $ 741 million of structured finance direct gross par as of September 30, 2022.

These commitments are contingent on the satisfaction of all conditions set forth in them and may expire unused or be canceled

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

at the counterparty’s request.

In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $ 808 million of public finance direct gross par and $ 1.4 billion of structured finance direct gross par as of March 31, 2023.

These commitments are contingent on the satisfaction of all conditions set forth in them and may expire unused or be canceled at the counterparty’s request.

Therefore, the total commitment amount does not necessarily reflect actual future guaranteed amounts.

Financial Guaranty Portfolio by Internal Rating

As of September 30, 2022

As of March 31, 2023

Public Finance

36 unchanged sentences

Total net par outstanding $ 179,636 100.0 % $ 44,463 100.0 % $ 8,228 100.0 % $ 931 100.0 % $ 233,258 100.0 %

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Financial Guaranty Portfolio

Components of BIG Net Par Outstanding

As of September 30, 2022

As of March 31, 2023

BIG Net Par Outstanding Net Par

10 unchanged sentences

Total $ 3,376 $ 180 $ 2,326 $ 5,882 $ 236,383

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Portfolio

15 unchanged sentences

BIG Net Par Outstanding and Number of Risks

As of September 30, 2022

As of March 31, 2023

Net Par Outstanding Number of Risks (2)

9 unchanged sentences

Total BIG $ 5,826 $ 56 $ 5,882 241 11 252

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Financial Guaranty Portfolio

15 unchanged sentences

(2) A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Exposure to Puerto Rico

The Company had insured exposure to general obligation bonds of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) and various obligations of its related authorities and public corporations aggregating $ 2.1 billion net par outstanding as of September 30, 2022, a decrease of $ 1.5 billion from the $ 3.6 billion net par outstanding as of December 31, 2021.

The Company had insured exposure to obligations of various authorities and public corporations of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) as well as its general obligation bonds aggregating $ 1.4 billion net par outstanding as of both March 31, 2023 and December 31, 2022.

All of the Company’s insured exposure to Puerto Rico is rated BIG.

The Company has paid claims as a result of payment defaults on all of its outstanding Puerto Rico exposures except the Municipal Finance Agency (MFA), the Puerto Rico Aqueduct and Sewer Authority (PRASA), and the University of Puerto Rico (U of PR).

On June 30, 2016, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was signed into law.

PROMESA established a seven-member Financial Oversight and Management Board (the FOMB) with authority to require that balanced budgets and fiscal plans be adopted and implemented by Puerto Rico.

Title III of PROMESA provides for a process analogous to a voluntary bankruptcy process under Chapter 9 of the United States Bankruptcy Code (Bankruptcy Code).

After over five years of negotiations, on March 15, 2022, a substantial portion of the Company’s Puerto Rico exposure was resolved in accordance with three orders entered by the United States District Court of the District of Puerto Rico (Federal District Court of Puerto Rico):

• On January 18, 2022, the Federal District Court of Puerto Rico, acting under Title III of PROMESA, entered an order and judgment confirming the Modified Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, and the Puerto Rico Public Buildings Authority (GO/PBA Plan).

The GO/PBA Plan restructured approximately $ 35 billion of debt (including the Puerto Rico General Obligation (GO) and Public Buildings Authority (PBA) bonds insured by the Company) and other claims against the government of Puerto Rico and certain entities as well as $ 50 billion in pension obligations (none of the pension obligations are insured by the Company), and the Company believes its terms are consistent with the terms of the settlement embodied in a revised plan support agreement (PSA) for GO and PBA entered into by AGM and AGC on February 22, 2021, with certain other stakeholders, the Commonwealth, and the FOMB (GO/PBA PSA).

• On January 20, 2022, the Federal District Court of Puerto Rico, acting under Title VI of PROMESA, entered an order under Title VI of PROMESA (PRCCDA Modification) modifying the debt of the Puerto Rico Convention Center District Authority (PRCCDA).

• On January 20, 2022, the Federal District Court of Puerto Rico, acting under Title VI of PROMESA, entered another order under Title VI of PROMESA (PRIFA Modification) modifying certain debt of the Puerto Rico Infrastructure Financing Authority (PRIFA).

As a result of the consummation on March 15, 2022, of each of the GO/PBA Plan, PRCCDA Modification and PRIFA Modification (together, the March Puerto Rico Resolutions), including claim payments made by the Company under the March Puerto Rico Resolutions, the Company’s obligations under its insurance policies covering debt of the PRCCDA and PRIFA were extinguished, and its insurance exposure to Puerto Rico GO and PBA was greatly reduced.

On October 12, 2022, the Federal District Court of Puerto Rico, acting under Title III of PROMESA, entered an order and judgment confirming the amended plan of adjustment for the Puerto Rico Highways and Transportation Authority (PRHTA) filed by the FOMB with the Federal District Court of Puerto Rico on September 6, 2022 (HTA Plan).

The HTA Plan restructures approximately $ 6.4 billion of debt (including the PRHTA bonds insured by the Company), and the Company believes its terms are consistent with the terms of the settlement embodied in the PRHTA PSA entered into on May 5, 2021, by AGM and AGC and certain other stakeholders, the Commonwealth, and the FOMB (the HTA PSA).

The FOMB will set the effective date of the HTA Plan (HTA Effective Date) and, as of November 7, 2022, the expected HTA Effective Date had not yet been announced.

The Company is continuing its efforts to resolve the one remaining Puerto Rico insured exposure that is in payment default, the Puerto Rico Electric Power Authority (PREPA).

Economic, political and legal developments, including inflation, increases in the cost of petroleum products and developments related to the COVID-19 pandemic, may impact any resolution of the Company’s PREPA insured exposure and the value of the consideration the Company has received in connection with the March Puerto Rico Resolutions or has received or may receive in the future in connection with the HTA PSA or HTA Plan or

Title III of PROMESA provides for a process analogous to a voluntary bankruptcy process under Chapter 9 of the United States Bankruptcy Code.

After over five years of negotiations, a substantial portion of the Company’s Puerto Rico exposure was resolved in 2022 in accordance with four orders (including orders implementing the GO/PBA Plan and HTA Plan described below) entered by the United States District Court of the District of Puerto Rico (Federal District Court of Puerto Rico) related to the Company’s exposure to all insured Puerto Rico credits experiencing payment default in 2022 except Puerto Rico Electric Power Authority (PREPA) (2022 Puerto Rico Resolutions).

As a result of the 2022 Puerto Rico Resolutions, during 2022 the Company’s obligations under its insurance policies covering debt of the Puerto Rico Convention Center District Authority (PRCCDA) and Puerto Rico Infrastructure Authority (PRIFA) were extinguished, and its insurance exposure to Puerto Rico general obligations (GO) bonds, Public Buildings Authority (PBA) bonds and Puerto Rico Highway and Transportation Authority (PRHTA) bonds were greatly reduced.

Under the Modified Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, and the Puerto Rico Public Buildings Authority (GO/PBA Plan), the Company received cash, new general obligation bonds (New GO Bonds) and contingent value instruments (CVIs).

Under the Modified Fifth Amended Title III Plan of Adjustment for PRHTA (HTA Plan), the Company received cash, new bonds backed by toll revenues (Toll Bonds, and together with the New GO Bonds, New Recovery Bonds) and CVIs.

Cash, New Recovery Bonds and CVIs received pursuant to the 2022 Puerto Rico Resolutions are collectively referred to as Plan Consideration.

Plan Consideration is reported in either cash, investments or FG VIE assets as described below.

• Investments and cash.

Plan Consideration received in respect of bondholders whose principal on bonds insured by the Company were accelerated against the Commonwealth and became due and payable under the 2022 Puerto Rico Resolutions are reported in Cash and Investments.

See Note 7, Investments, for the fair value of the Toll Bonds and CVIs remaining as of March 31, 2023.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

any future resolutions of the Company’s PREPA insured exposures.

The impact of developments relating to Puerto Rico during any quarter or year could be material to the Company’s results of operations and shareholders’ equity.

Puerto Rico GO and PBA

As of September 30, 2022, the Company had remaining $ 25 million of insured net par outstanding of GO bonds and $ 4 million of insured net par outstanding of PBA bonds.

Under the GO/PBA Plan and in connection with its direct exposure the Company received (including amounts received in connection with the second election described further below, but excluding amounts received in connection with second-to-pay exposures):

• $ 530 million in cash, net of ceded reinsurance,

• $ 605 million of new recovery bonds (see Note 7, Investments and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles for additional information), which represents the face value of current interest bonds and the maturity value of capital appreciation bonds, net of ceded reinsurance, and

• $ 258 million of contingent value instruments (CVIs) (see Note 7, Investments and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles for additional information), which represents the original notional value, net of ceded reinsurance.

Notes to Condensed Consolidated Financial Statements (Unaudited)

• FG VIE assets.

Plan Consideration received in respect of insured bondholders who elected to receive custody receipts that represent an interest in the legacy insurance policy plus Plan Consideration that constitute distributions under the HTA Plan or the GO/PBA Plan are reported in FG VIE assets.

The Company’s insurance policy continues to guarantee principal and interest coming due on the legacy insured bonds in accordance with the terms of such insurance policy on the originally scheduled legacy bond interest and principal payment dates to the extent that distributions of Plan Consideration are insufficient to pay or prepay such amounts.

See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for the fair value of New Recovery Bonds remaining as of March 31, 2023

The Company has sold a portion of the New Recovery Bonds and CVIs and may sell in the future any New Recovery Bonds or CVIs it continues to hold.

The fair value of any New Recovery Bonds and CVIs that the Company retains will fluctuate from their date of acquisition.

Any gains or losses on sales of New Recovery Bonds and CVIs in the investment portfolio are reported as realized gains and losses on investments and fair value gains (losses) on trading securities, respectively, rather than loss and LAE.

The CVIs are intended to provide creditors with additional recoveries tied to the outperformance of the Puerto Rico 5.5% Sales and Use Tax (SUT) receipts against May 2020 certified fiscal plan projections, subject to annual and lifetime caps.

The notional amount of a CVI represents the sum of the maximum distributions the holder could receive under the CVI, subject to the cumulative and annual caps, if the SUT sufficiently exceeds 2020 certified fiscal plan projections, without any discount for time.

The Company has sold most of the new recovery bonds and CVIs it received on March 15, 2022, and may sell in the future any new recovery bonds or CVIs it continues to hold.

The fair value of any new recovery bonds or CVIs the Company retains will fluctuate.

Any gains or losses on sales of new recovery bonds and CVIs relative to their values on March 15, 2022, were and will be reported as realized gains and losses on investments and fair value gains (losses) on trading securities, respectively, rather than loss and LAE.

In August 2021, the Company exercised certain elections under the GO/PBA Plan that impact the timing of payments under its insurance policies.

In accordance with the terms of the GO/PBA Plan, the payment of the principal of all GO bonds and PBA bonds insured by the Company was accelerated against the Commonwealth and became due and payable as of March 15, 2022.

Insured holders of noncallable insured bonds covered by the GO/PBA Plan (representing $ 102 million of net par outstanding as of December 31, 2021) were permitted to elect either:

(i) to receive on March 15, 2022, 100 % of the then outstanding principal amount of insured bonds plus accrued interest;

or (ii) to receive custody receipts that represent an interest in the legacy insurance policy plus cash, new recovery bonds and CVIs (in aggregate, Plan Consideration) that constitute distributions under the GO/PBA Plan.

For those who made the second election, distributions of Plan Consideration are immediately passed through to insured bondholders under the custody receipts to the extent of any cash or proceeds of new securities held in the custodial trust and are applied to make payments and/or prepayments of amounts due under the legacy insured bonds.

In the case of insured bondholders who elected to receive custody receipts, the Company retains the right to satisfy its obligations under the insurance policy with respect to the related legacy insured bonds at any time thereafter, with 30 days’ notice, by paying 100 % of the then outstanding principal amount of insured bonds plus accrued interest.

As of September 30, 2022, the net insured par outstanding under the legacy GO and PBA insurance policies was $ 29 million, and constituted all of the Company’s remaining net par exposure to the GO and PBA bonds it had insured.

PRCCDA and PRIFA

As of September 30, 2022, the Company had no insured net par outstanding of PRCCDA or PRIFA obligations remaining.

Under the PRCCDA Modification and the PRIFA Modification, on March 15, 2022, the Company received an aggregate of $ 47 million in cash (net of ceded reinsurance) and $ 98 million in notional amount of CVIs (net of ceded reinsurance).

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

As of September 30, 2022, the Company had $ 1.2 billion of insured net par outstanding that is covered by the HTA PSA:

$ 771 million insured net par outstanding of PRHTA (transportation revenue) bonds and $ 418 million insured net par outstanding of PRHTA (highway revenue) bonds.

The transportation revenue bonds are secured by a subordinate gross lien on gasoline and gas oil and diesel oil taxes, motor vehicle license fees and certain tolls, plus a first lien on taxes on crude oil, unfinished oil and derivative products.

The highway revenue bonds are secured by a gross lien on gasoline and gas oil and diesel oil taxes, motor vehicle license fees and certain tolls.

The HTA PSA provides for payments to AGM and AGC consisting of:

(ii) new bonds expected to be backed by toll revenue (Toll Bonds);

and (iii) a CVI.

The HTA PSA contemplates a Title III proceeding requiring court approval of a disclosure statement, solicitation and voting process, and a plan confirmation hearing.

On September 6, 2022, the FOMB filed an amended HTA Plan with the Federal District Court of Puerto Rico, which the Company believes to be consistent with the HTA PSA, and on October 12, 2022, the court approved the amended HTA Plan.

The HTA Plan, similar to the GO/PBA Plan, provides an option for holders of noncallable bonds insured by the Company (representing $ 788 million of net par outstanding as of September 30, 2022) to elect to receive custody receipts that represent an interest in the legacy insurance policy plus Toll Bonds, and insured bondholders representing $ 451 million net par outstanding as of September 30, 2022 have elected this option.

The FOMB will set the effective date of the HTA Plan (HTA Effective Date) and, as of November 7, 2022, the expected HTA Effective Date had not yet been announced.

During third quarter 2022, the Company received, pursuant to the GO/PBA Plan and the terms of the HTA PSA, $ 147 million of cash and $ 672 million original notional of CVI.

The Company has sold a portion of those CVIs.

On the HTA Effective Date, the Company also expects to receive additional recoveries in the form of cash and Toll Bonds.

As of September 30, 2022, the Company had $ 720 million insured net par outstanding of PREPA obligations.

The PREPA obligations are secured by a lien on the revenues of the electric system.

On May 3, 2019, AGM and AGC entered into a restructuring support agreement with PREPA and other stakeholders, including a group of uninsured PREPA bondholders, the Commonwealth and the FOMB (PREPA RSA).

This agreement was terminated by Puerto Rico on March 8, 2022.

On April 8, 2022, Judge Laura Taylor Swain of the Federal District Court of Puerto Rico issued an order appointing as members of a PREPA mediation team U.S.

Bankruptcy Judges Shelley Chapman (lead mediator), Robert Drain and Brendan Shannon.

Judge Swain also entered a separate order establishing the terms and conditions of mediation, including that the mediation would terminate on June 1, 2022.

Judge Swain has since extended the term of such mediation several times, most recently on September 8, 2022 extending the term to September 16, 2022.

After mediation terminated, Judge Swain issued an order on September 29, 2022 that (i) directs the FOMB to file a plan of adjustment and disclosure statement by December 1, 2022, (ii) sets a schedule for litigating bondholders’ lien status, and (iii) directs a new round of mediation that would terminate on December 31, 2022, but granting discretion to the mediation team to further extend the mediation deadline to January 31, 2023 based on its assessment of the progress of the mediation process.

The last revised fiscal plan for PREPA was certified by the FOMB on May 27, 2021.

Other Puerto Rico Exposures

All debt service payments for the Company’s remaining Puerto Rico exposures have been made in full by the obligors as of the date of this filing.

Such exposures comprise:

As of September 30, 2022, the Company had $ 131 million insured net par outstanding of bonds issued by MFA secured by a lien on local property tax revenues.

As of September 30, 2022, the Company had $ 1 million insured net par outstanding of U of PR bonds, which are general obligations of the university and are secured by a subordinate lien on the proceeds, profits and other income of the university, subject to a senior pledge and lien for the benefit of outstanding university system revenue bonds.

As of September 30, 2022, the Company had $ 1 million insured net par outstanding of PRASA obligations.

The Company’s insured PRASA obligations are secured by a lien on the gross revenues of the water and sewer system.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Puerto Rico Litigation

Currently, there are numerous legal actions relating to the default by the Commonwealth and certain of its instrumentalities on debt service payments, and related matters, and the Company is a party to a number of them.

The Company has taken legal action, and may take additional legal action in the future, to enforce its rights with respect to Puerto Rico obligations which the Company insures.

In addition, the Commonwealth, the FOMB and others have taken legal action naming the Company as party.

A number of legal actions involving the Company and relating to PRCCDA and PRIFA, as well as claims related to the clawback of certain excise taxes and revenues pledged to secure bonds issued by PRHTA, were resolved on March 15, 2022 in connection with the consummation of the March Puerto Rico Resolutions.

All other proceedings remain stayed pending the Court’s determination on plans of adjustment or other proceedings related to PRHTA and PREPA.

Remaining Stayed Proceedings .

The following Puerto Rico proceedings in which the Company is involved remain stayed:

• On June 26, 2017, AGM and AGC filed a complaint in the Federal District Court of Puerto Rico to compel the FOMB to certify the PREPA RSA for implementation under Title VI of PROMESA.

On July 21, 2017, considering its PREPA Title III petition on July 2, 2017, the FOMB filed a notice of stay under PROMESA.

• On July 18, 2017, AGM and AGC filed a motion for relief in the Federal District Court of Puerto Rico from the

automatic stay filed in the PREPA Title III Bankruptcy proceeding.

The court denied the motion on September 14,

2017, but on August 8, 2018, the United States Court of Appeals for the First Circuit vacated and remanded the court’s decision.

On October 3, 2018, AGM and AGC, together with other bond insurers, filed a motion with the court to lift the automatic stay to commence an action against PREPA for the appointment of a receiver.

• On May 20, 2019, the FOMB and the Official Committee of Unsecured Creditors filed an adversary complaint in the Federal District Court of Puerto Rico challenging the validity, enforceability, and extent of security interests in PRHTA revenues.

On July 24, 2019, Judge Swain announced a court-imposed stay of a series of adversary proceedings and contested matters, which include this proceeding, through November 30, 2019, with a mandatory mediation element;

Judge Swain extended the stay through December 31, 2019, and subsequently extended the stay again pending further order of the court on the understanding that these issues will be resolved in other proceedings.

• On September 30, 2019, certain parties that either had advanced funds to PREPA for the purchase of fuel or had succeeded to such claims (Fuel Line Lenders) filed an amended adversary complaint against the FOMB and other parties, including AGC and AGM, seeking subordination of PREPA bondholder claims to Fuel Line Lenders’ claims.

On November 12, 2019, AGC and AGM filed a motion to dismiss the amended adversary complaint.

The FOMB filed a status report on May 15, 2020 regarding PREPA’s financial condition and its request for approval of the PREPA RSA settlement, in which it requested that it be permitted to file an updated report by July 31, 2020, that all proceedings related to the approval of the PREPA RSA settlement continue to be adjourned, and that the hearing in this adversary proceeding scheduled for June 3, 2020 be adjourned.

On May 22, 2020, the Federal District Court of Puerto Rico issued an order to that effect.

On September 29, 2022, the court entered an order terminating the motion to dismiss without prejudice, and indicating that the issues in the adversary proceeding will only be addressed, if necessary, after issues related to security and recourse of the PREPA bonds have been resolved or, if necessary, in connection with the confirmation of a plan of adjustment for PREPA.

• On October 30, 2019, the retirement system for PREPA employees (SREAEE) filed an amended adversary complaint in the Federal District Court of Puerto Rico against the FOMB and other parties, seeking subordination of PREPA bondholder claims to SREAEE claims.

On November 7, 2019, the court granted a motion to intervene by AGC and AGM.

On November 13, 2019, AGC and AGM filed a motion to dismiss the amended adversary complaint.

On May 22, 2020, the Federal District Court of Puerto Rico issued an order to that effect.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

• On January 16, 2020, the FOMB, on behalf of the PRHTA, brought an adversary proceeding in the Federal District Court of Puerto Rico against AGM and AGC and other insurers of PRHTA bonds, objecting to the bond insurers claims in the PRHTA Title III proceedings and seeking to disallow such claims.

Considering the PSA, on May 25, 2021, Judge Swain stayed the participation of AGM and AGC.

• On July 1, 2019, the FOMB initiated an adversary proceeding against U.S.

Bank National Association, as trustee for PREPA’s bonds, objecting to and challenging the validity, enforceability, and extent of prepetition security interests securing those bonds and seeking other relief.

On September 30, 2022, the FOMB filed an amended complaint against the trustee (i) objecting to and challenging the validity, enforceability, and extent of prepetition security interests securing PREPA’s bonds and (ii) arguing that PREPA bondholders’ recourse was limited to certain deposit accounts held by the trustee.

On October 7, 2022, the court approved a stipulation permitting AGM and AGC to intervene as defendants.

Substantially all of the CVIs are reported in investments, rather than FG VIEs.

The Company is continuing its efforts to resolve the one remaining Puerto Rico insured exposure that is in payment default, PREPA.

Economic, political and legal developments, including inflation and increases in the cost of petroleum products, may impact any resolution of the Company’s PREPA insured exposure and the value of any remaining consideration received in connection with the 2022 Puerto Rico Resolutions or any future resolutions of the Company’s PREPA insured exposures.

The impact of developments relating to Puerto Rico during any quarter or year could be material to the Company’s results of operations and shareholders’ equity.

Puerto Rico Par and Debt Service Schedules

3 unchanged sentences

Gross Par Outstanding Gross Debt Service Outstanding

September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

(in millions)

1 unchanged sentence

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes to Condensed Consolidated Financial Statements (Unaudited)

Net Par Outstanding

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in millions)

Puerto Rico Exposures Subject to a Plan or Support Agreement

Commonwealth of Puerto Rico - GO (1)

PBA (1) 4 122

Total GO/PBA Plan 29 1,219

Defaulted Puerto Rico Exposures

PREPA $ 720 $ 720

Total Defaulted 720 720

Resolved Puerto Rico Exposures

PRHTA (Transportation revenue) (1) 295 298

PRHTA (Highway revenue) (1) 182 182

PRCCDA (2) — 152

Total HTA PSA 1,189 1,408

PRIFA (2) — 16

Total Subject to a Plan or Support Agreement 1,218 2,643

Commonwealth of Puerto Rico - GO (1)

Total Resolved 506 509

Other Puerto Rico Exposures

PREPA 720 748

MFA (2) 124 131

PRASA and U of PR (2) 1 1

Total Other Puerto Rico Exposures 853 929

Total Other 125 132

Total net exposure to Puerto Rico $ 1,351 $ 1,361

____________________

(1) On March 15, 2022, the Modified Eighth Amended Title III Joint Plan of Adjustment, confirmed on January 18, 2022, was consummated, pursuant to which the Company, among other things, fully paid claims on all of its directly insured Puerto Rico GO bonds, other than certain GO bonds whose holders made certain elections.

On the same date and pursuant to the same Plan of Adjustment, the Company fully paid claims on all of its directly insured PBA bonds, other than certain PBA bonds whose holders made certain elections.

(2) On March 15, 2022, the Company fully paid claims on all of its insured PRCCDA and PRIFA bonds, eliminating its exposure to insured PRCCDA and PRIFA bonds, pursuant to Title VI orders entered on January 20, 2022.

(1) Resolved in pursuant to the 2022 Puerto Rico Resolutions.

(2) All debt service on these insured exposures have been paid to date without any insurance claim being made on the Company.

The following table shows the scheduled amortization of the insured general obligation bonds of Puerto Rico and various obligations of its related authorities and public corporations.

The Company guarantees payments of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis, although in certain circumstances it may elect to do so.

The Company guarantees payment of interest and principal when those amounts are scheduled to be paid and cannot be required to pay on an accelerated basis, although in certain circumstances it may elect to do so.

In the event that obligors default on their obligations, the Company would only be required to pay the shortfall between the debt service due in any given period and the amount paid by the obligors.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Amortization Schedule of Puerto Rico

Net Par Outstanding and Net Debt Service Outstanding

As of September 30, 2022

As of March 31, 2023

Scheduled Net Par Amortization Scheduled Net Debt Service Amortization

(in millions)

2022 (October 1 - December 31) $ — $ 3

2023 (January 1 - March 31) — 49

2023 (April 1 - June 30) $ — $ 3

6 unchanged sentences

Total $ 1,351 $ 1,835

Exposure to the U.S.

Virgin Islands

As of September 30, 2022, the Company had $ 183 million insured net par outstanding to the U.S.

Virgin Islands and its related authorities (USVI), of which it rated $ 47 million BIG (down from $ 469 million BIG as of December 31, 2021).

In nine months 2022, $ 256 million of insured net par outstanding of USVI bonds were legally defeased and $ 134 million of insured net par outstanding of USVI bonds were upgraded to investment grade.

The remaining $ 47 million of BIG USVI net par outstanding consisted of bonds of the Virgin Islands Water and Power Authority secured by a net revenue pledge of the electric system.

The USVI continues to benefit from the federal response to the 2017 hurricanes and COVID-19, has seen improvement in the tourism sector, recently took actions to address its pension shortfalls, and has made its debt service payments to date.

Specialty Insurance and Reinsurance Exposure

The Company also provides specialty insurance and reinsurance on transactions with risk profiles similar to those of its structured finance exposures written in financial guaranty form.

As of both September 30, 2022 and December 31, 2021, gross exposure of $ 144 million and net exposure of $ 84 million of aircraft residual value insurance was BIG.

All other exposures in the table below are investment-grade quality.

Specialty Insurance and Reinsurance Exposure

As of September 30, 2022 As of December 31, 2021

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As of March 31, 2023, the Company had $ 720 million insured net par outstanding of PREPA obligations.

The Company believes that the PREPA obligations are secured by a lien on the revenues of the electric system.

This agreement was terminated by Puerto Rico on March 8, 2022.

On April 8, 2022, Judge Laura Taylor Swain of the Federal District Court of Puerto Rico issued an order appointing as members of a PREPA mediation team U.S.

Bankruptcy Judges Shelley Chapman (lead mediator), Robert Drain and Brendan Shannon.

Judge Swain also entered a separate order establishing the terms and conditions of mediation, including that the mediation would terminate on June 1, 2022.

Judge Swain has since extended the term of such mediation several times, most recently on April 24, 2023 extending the term to July 28, 2023.

The FOMB initially filed a plan of adjustment and disclosure statement for PREPA with the Federal District Court of Puerto Rico on December 16, 2022, and filed an amended version on February 9, 2023 (FOMB PREPA Plan).

The FOMB PREPA Plan would split bondholders into two groups:

one that would settle litigation regarding whether that creditor repayment is limited to existing accounts, and another group that would continue litigating that bondholders have a right to PREPA’s current and future revenue collections.

The FOMB PREPA Plan provides for lower recoveries to bondholders than did previous agreements the FOMB reached with bondholders.

The Federal District Court of Puerto Rico approved the PREPA disclosure statement on February 28, 2023, which allows bondholder solicitation on the FOMB PREPA Plan to begin.

On March 22, 2023, the Federal District Court of Puerto Rico found that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control.

The Federal District Court of Puerto Rico also held, however, that PREPA bondholders do have recourse under the PREPA trust agreement in the form of an unsecured net revenue claim.

The Federal District Court of Puerto Rico declined to value the amount of the claim but defined it as the value of the net revenues that would have, under the waterfall provisions of the PREPA trust agreement and applicable nonbankruptcy law, become collateral upon being deposited in the sinking fund and payable to PREPA bondholders over the remaining terms of the bonds.

The ultimate value of the claim, according to the Federal District Court of Puerto Rico, should be determined through a claim estimations proceeding.

On April 13, 2023, the Federal District Court of Puerto Rico issued an order regarding proposed procedures to estimate the value of the unsecured net revenue claim, pursuant to which the court established a discovery briefing and expert report schedule, indicated that a hearing would be held the week of June 5, 2023, and stated that it expected and directed the parties to engage in good faith mediation.

The last revised fiscal plan for PREPA was certified by the FOMB on June 28, 2022.

As of March 31, 2023, the Company had $ 477 million of insured net par outstanding of PRHTA bonds:

$ 295 million insured net par outstanding of PRHTA (transportation revenue) bonds and $ 182 million insured net par outstanding of PRHTA (highway revenue) bonds.

PRHTA net par outstanding represents the Company’s exposure in respect of insured bondholders who elected to receive custody receipts that represent an interest in the legacy insurance policy plus Toll Bonds that constitute distributions under the HTA Plan.

Puerto Rico GO and PBA

As of March 31, 2023, the Company had remaining $ 25 million of insured net par outstanding of GO bonds and $ 4 million of insured net par outstanding of PBA bonds.

GO/PBA net par outstanding represents the Company’s exposure in respect of insured bondholders who elected to receive custody receipts that represent an interest in the legacy insurance policy plus cash, New GO Bonds and CVIs that constitute distributions under the GO/PBA Plan.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Other Puerto Rico Exposures

All debt service payments for the Company’s remaining Puerto Rico exposures of $ 125 million insured net par outstanding have been made in full by the obligors as of the date of this filing.

These exposures consist primarily of $ 124 million net par outstanding of MFA bonds, which are secured by a lien on local tax revenues.

Puerto Rico Litigation

The Company has taken legal action, and may take additional legal action in the future, to enforce its rights with respect to Puerto Rico obligations which the Company insures.

In addition, the Commonwealth, the FOMB and others have taken legal action naming the Company as party.

A number of legal actions involving the Company and relating to the Commonwealth, PRCCDA and PRIFA, as well as claims related to the clawback of certain excise taxes and revenues pledged to secure bonds issued by PRHTA, were resolved on March 15, 2022, and all remaining legal actions involving the Company and relating to PRHTA were resolved on December 6, 2022, which together comprised the consummation of the 2022 Puerto Rico Resolutions.

Except for one proceeding related to PREPA, all proceedings involving the Company and relating to the default by the Commonwealth or its instrumentalities remain stayed pending the Federal District Court of Puerto Rico's determination on plans of adjustment or other proceedings.

The following Puerto Rico proceeding in which the Company is involved is no longer stayed:

• On July 1, 2019, the FOMB initiated an adversary proceeding against U.S.

On October 7, 2022, the court approved a stipulation permitting AGM and AGC to intervene as defendants.

Summary judgment motions were filed by plaintiffs and defendants on October 24, 2022.

As noted above, on March 22, 2023, the Federal District Court of Puerto Rico granted in part and denied in part each party’s cross-motions for summary judgment.

The Federal District Court of Puerto Rico found that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control.

The Federal District Court of Puerto Rico also held that the PREPA bondholders do have recourse under the trust agreement in the form of an unsecured net revenue claim, but declined to value the unsecured net revenue claim.

On April 13, 2023, the court issued an order proposing procedures to estimate the value of the unsecured net revenue claim, pursuant to which the court established a discovery and expert report schedule, and directed the parties to engage in good faith mediation.

A hearing is expected to be held the week of June 5, 2023.

On May 3, 2023, the Federal District Court of Puerto Rico denied PREPA bondholders’ request to certify their interlocutory appeal of the finding that the PREPA bondholders had perfected liens only in revenues that had been deposited in the sinking fund established under the PREPA trust agreement and related funds over which the bond trustee had control.

The Company is likely to appeal portions of the decision, including the lien scope ruling and necessity of any claim estimation proceeding, once the FOMB PREPA Plan has been approved.

The following Puerto Rico proceedings in which the Company is involved remain stayed:

• On June 26, 2017, AGM and AGC filed a complaint in the Federal District Court of Puerto Rico to compel the FOMB to certify the PREPA RSA for implementation under Title VI of PROMESA.

On July 21, 2017, considering its PREPA Title III petition on July 2, 2017, the FOMB filed a notice of stay under PROMESA.

• On July 18, 2017, AGM and AGC filed a motion for relief in the Federal District Court of Puerto Rico from the

automatic stay filed in the PREPA Title III Bankruptcy proceeding.

The court denied the motion on September 14,

2017, but on August 8, 2018, the United States Court of Appeals for the First Circuit vacated and remanded the court’s decision.

On October 3, 2018, AGM and AGC, together with other bond insurers, filed a motion with the court to lift the automatic stay to commence an action against PREPA for the appointment of a receiver.

Following termination of mediation without a resolution and the filing of a motion to dismiss PREPA’s Title III case or to lift the automatic stay

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

to allow for the appointment of a receiver, the court effectively stayed this matter until termination of the plan confirmation process.

Relatedly, on January 16, 2020, the FOMB, on behalf of the PRHTA, brought an adversary proceeding in the Federal District Court of Puerto Rico against AGM and AGC and other insurers of PRHTA bonds, objecting to the bond insurers claims in the PRHTA Title III proceedings and seeking to disallow such claims.

These matters are currently stayed.

On October 12, 2022, the court entered an order and judgment confirming the amended plan of adjustment for PRHTA filed by the FOMB with the court on September 6, 2022 (HTA Confirmation Order), and which provides that these adversary proceeding must be dismissed with prejudice within five business days of the HTA Confirmation Order becoming a final order, which should occur after all appeals of the HTA Confirmation Order have been resolved.

On November 12, 2019, AGC and AGM filed a motion to dismiss the amended adversary complaint.

On September 29, 2022, the court entered an order terminating the motion to dismiss without prejudice and indicating that the issues in the adversary proceeding will only be addressed, if necessary, after issues related to security and recourse of the PREPA bonds have been resolved or, if necessary, in connection with the confirmation of a plan of adjustment for PREPA.

On November 7, 2019, the court granted a motion to intervene by AGC and AGM.

On November 13, 2019, AGC and AGM filed a motion to dismiss the amended adversary complaint.

Specialty Business

The Company also guarantees specialty business with risk profiles similar to those of its structured finance exposures written in financial guaranty form.

Specialty Insurance, Reinsurance and Guaranties

As of March 31, 2023 As of December 31, 2022

Gross Exposure Net Exposure Gross Exposure Net Exposure

4 unchanged sentences

355 200 355 200

Total $ 1,656 $ 1,169 $ 1,605 $ 1,071

Other guaranties 1,626 1,626 228 228

____________________

(1) The life insurance transactions’ net exposure is projected to reach $ 1.1 billion by June 30, 2024.

(1) The life insurance transactions net exposure is projected to reach $ 1.1 billion in 2025.

As of both March 31, 2023 and December 31, 2022, gross exposure of $ 144 million and net exposure of $ 84 million of aircraft residual value insurance was BIG.

All other exposures in the table above are investment-grade quality.

The Company’s subsidiary, AGRO, also guarantees other specialty business, including an excess-of-loss guaranty of a minimum amount of billed rent on a diversified portfolio of real estate properties with an internal rating of AA.

These guaranties mature in 2042.

The Company’s maximum potential exposure under these guaranties was $ 1.6 billion as of March 31, 2023.

The Company accounts for such guaranties in accordance with Accounting Standards Codification (ASC) 460, Guarantees.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

On March 31, 2022, the Company’s subsidiary, AGRO, entered into an agreement (internally rated AA) which guarantees the receipt of a minimum rental income from a multifamily and commercial real estate portfolio.

The minimum rental income guaranteed by AGRO is significantly below current annual rental income, and further protective provisions are triggered when rental income falls below a certain level.

In addition, AGRO is entitled to be reimbursed for any claims made on the guarantee from future rental income generated by the portfolio.

The Company’s maximum potential exposure under the guarantee was $ 232 million as of September 30, 2022.

The Company accounts for the guarantee in accordance with Accounting Standards Codification (ASC) 460, Guarantees.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Expected Loss to be Paid (Recovered)

7 unchanged sentences

Net expected loss to be paid (recovered) is net of amounts ceded to reinsurers.

The Company’s net expected loss to be paid (recovered) incorporates management’s probability weighted estimates of all possible scenarios.

Expected cash outflows and inflows are probability weighted cash flows that reflect management’s assumptions about the likelihood of all possible outcomes based on all information available to it.

The Company’s net expected loss to be paid (recovered) incorporates management’s probability weighted scenarios.

Expected cash outflows and inflows are probability weighted cash flows that reflect management’s assumptions about the likelihood of all possible outcomes based on all information available to the Company.

Those assumptions consider the relevant facts and circumstances and are consistent with the information tracked and monitored through the Company’s risk management activities.

Expected loss to be paid (recovered) is important in that it represents the present value of amounts that the Company expects to pay or recover in future periods for all contracts.

Management compiles and analyzes loss information for all exposures on a consistent basis, in order to effectively

evaluate and manage the economics and liquidity of the entire insured portfolio.

The Company monitors and assigns ratings and

calculates expected loss to be paid (recovered) in the same manner for all its exposures regardless of form or differing

accounting models.

This note provides information regarding expected claim payments to be made under all contracts in the

insured portfolio.

In circumstances where the Company has purchased its own insured obligations that had expected losses, and in cases

In circumstances where the Company purchased its own insured obligations that had expected losses, and in cases

where issuers of insured obligations elected or the Company and an issuer mutually agreed as part of a negotiation to deliver the

1 unchanged sentence

the asset received is prospectively accounted for under the applicable guidance for that instrument.

Insured obligations with expected losses that were purchased by the Company are referred to as Loss Mitigation Securities and are recorded in the investment portfolio at fair value, excluding the value of the Company’s insurance.

For Loss Mitigation Securities, the difference between the purchase price of the insured obligation and the fair value excluding the value of the Company’s insurance (on the date of acquisition) is treated as a paid loss.

See Note 7, Investments, and Note 9, Fair Value Measurement.

Economic loss development represents the change in net expected loss to be paid (recovered) attributable to the effects of changes in the economic performance of insured transactions, changes in assumptions based on observed market trends, changes in discount rates, accretion of discount and the economic effects of loss mitigation efforts.

In order to effectively evaluate and manage the economics and liquidity of the entire insured portfolio, management assigns ratings and calculates expected loss to be paid (recovered) in the same manner for all its exposures regardless of form or differing accounting models.

The insured portfolio includes policies accounted for under various accounting models depending on the characteristics of the contract and the Company’s control rights.

4 unchanged sentences

The Company has paid and expects to pay future losses and/or recover past losses on policies which fall under each of these accounting models.

This note provides information regarding expected claim payments to be made and/or recovered under all contracts in the insured portfolio.

Loss Estimation Process

2 unchanged sentences

In the case of its assumed business, the Company may conduct its own analysis as just described or, depending on the Company’s view of the potential size of any loss and the information available to the Company, the Company may use loss estimates provided by ceding insurers.

The Company monitors the performance of its transactions with expected losses and each quarter the Company’s loss reserve committees review and refresh their loss projection

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

assumptions, scenarios and the probabilities they assign to those scenarios based on actual developments during the period and their view of future performance.

The Company monitors the performance of its transactions with expected losses and each quarter the Company’s loss reserve committees review and refresh their loss projection assumptions, scenarios and the probabilities they assign to those scenarios based on actual developments during the period and their view of future performance.

The financial guaranties issued by the Company insure the credit performance of the guaranteed obligations over an extended period of time, in some cases over 30 years, and in most circumstances the Company has no right to cancel such financial guaranties.

1 unchanged sentence

Credit performance can be adversely affected by economic, fiscal and financial market variability over the life of most contracts.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company does not use traditional actuarial approaches to determine its estimates of expected losses.

2 unchanged sentences

Each quarter, the Company may revise its scenarios and update its assumptions, including the probability weightings of its scenarios based on public information as well as nonpublic information obtained through its surveillance and loss mitigation activities.

Such information includes management’s view of the potential impact of COVID-19 on its distressed exposures.

Management assesses the possible implications of such information on each insured obligation, considering the unique characteristics of each transaction.

Changes over a reporting period in the Company’s loss estimates for municipal obligations supported by specified revenue streams, such as revenue bonds issued by toll road authorities, municipal utilities or airport authorities, generally will be influenced by factors impacting their revenue levels, such as changes in demand;

Changes over a reporting period in the Company’s loss estimates for public finance obligations supported by specified revenue streams, such as revenue bonds issued by toll road authorities, municipal utilities or airport authorities, generally will be influenced by factors impacting their revenue levels, such as changes in demand;

changing demographics;

and other economic factors, especially if the obligations do not benefit from financial support from other tax revenues or governmental authorities.

Changes over a reporting period in the Company’s loss estimates for its tax-supported public finance transactions generally will be influenced by factors impacting the public issuer’s ability and willingness to pay, such as changes in the economy and population of the relevant area;

Changes over a reporting period in the Company’s loss estimates for its tax-supported and general obligation public finance transactions generally will be influenced by factors impacting the public issuer’s ability and willingness to pay, such as changes in the economy and population of the relevant area;

changes in the issuer’s ability or willingness to raise taxes, decrease spending or receive federal assistance;

7 unchanged sentences

For example, changes over a reporting period in the Company’s loss estimates for its RMBS transactions may be influenced by factors such as the level and timing of loan defaults experienced, changes in housing prices, results from the Company’s loss mitigation activities, and other variables.

Actual losses will ultimately depend on future events or transaction performance and may be influenced by many

interrelated factors that are difficult to predict.

As a result, the Company’s current projections of losses may be subject to

considerable volatility and may not reflect the Company’s ultimate claims paid.

Changes to estimates of net expected loss to be paid (recovered) and net economic loss development (benefit) over a reporting period may be attributable to a number of interrelated factors such as changes in discount rates, improvement or deterioration of transaction performance, charge-offs, loss mitigation activity, changes to projected default curves, severity rates, and dispute resolution.

Actual losses will ultimately depend on future events, transaction performance or other factors that are difficult to predict.

As a result, the Company’s current projections of losses may be subject to considerable volatility and may not reflect the Company’s ultimate claims paid.

In some instances, the terms of the Company’s policy or the terms of certain workout orders and resolutions give it the option to pay principal losses that have been recognized in the transaction but which it is not yet required to pay, thereby reducing the amount of guaranteed interest due in the future.

The Company has sometimes exercised this option, which uses cash but reduces projected future losses.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Expected Loss to be Paid (Recovered) and Net Economic Loss Development (Benefit)

1 unchanged sentence

Net Expected Loss to be Paid (Recovered) Net Economic Loss Development (Benefit)

As of Third Quarter Nine Months

Accounting Model September 30, 2022 December 31, 2021 2022 2021 2022 2021

As of First Quarter

Accounting Model March 31, 2023 December 31, 2022 2023 2022

(in millions)

6 unchanged sentences

____________________

(1) The expected loss to be paid for FG VIEs primarily relates to trusts established as part of the 2022 Puerto Rico Resolutions (Puerto Rico Trusts) that were consolidated.

The following tables present a roll forward of net expected loss to be paid (recovered) for all contracts, which are accounted for under one of the following accounting models:

insurance, derivative and FG VIE.

The Company used risk-free rates for U.S.

dollar denominated obligations that ranged from 2.98 % to 4.18 % with a weighted average of 3.97 % as of September 30, 2022 and 0.00 % to 1.98 % with a weighted average of 1.02 % as of December 31, 2021.

The Company used risk-free

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

rates for U.S.

dollar denominated obligations that ranged from 3.44 % to 4.87 % with a weighted average of 3.75 % as of March 31, 2023 and 3.82 % to 4.69 % with a weighted average of 4.08 % as of December 31, 2022.

Expected losses to be paid for U.S.

dollar denominated transactions represented approximately 99.3 % and 97.2 % of the total as of September 30, 2022 and December 31, 2021, respectively.

dollar denominated transactions represented approximately 97.6 % and 98.5 % of the total as of March 31, 2023 and December 31, 2022, respectively.

Net Expected Loss to be Paid (Recovered)

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

8 unchanged sentences

____________________

(1) In third quarter 2022, the Company received from the Commonwealth, pursuant to the GO/PBA Plan and the terms of the HTA PSA, $ 147 million of cash and $ 672 million original notional of CVI.

(1) Net (paid) recovered losses in 2022 include the net amounts received pursuant to the portion of the 2022 Puerto Rico Resolutions related to PRCCDA, PRIFA and GO/PBA exposures, as described in Note 3, Outstanding Exposure.

Net Expected Loss to be Paid (Recovered)

Roll Forward by Sector

Third Quarter 2022

Sector Net Expected Loss to be Paid (Recovered) as of June 30, 2022 Economic Loss

Development (Benefit) Net (Paid)

Net Expected Loss to be Paid (Recovered) as of September 30, 2022

(in millions)

Public finance:

public finance $ 210 $ 24 $ 392 $ 626

public finance 7 ( 2 ) 1 6

Public finance 217 22 393 632

Structured finance:

RMBS 179 ( 95 ) ( 32 ) 52

Other structured finance 46 1 ( 4 ) 43

Structured finance 225 ( 94 ) ( 36 ) 95

Total $ 442 $ ( 72 ) $ 357 $ 727

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Third Quarter 2021

Sector Net Expected Loss to be Paid (Recovered) as of June 30, 2021 Economic Loss

Development (Benefit) Net (Paid)

Net Expected Loss to be Paid (Recovered) as of September 30, 2021

(in millions)

Public finance:

public finance $ 221 ( 29 ) $ ( 201 ) $ ( 9 )

public finance 22 ( 2 ) ( 1 ) 19

Public finance 243 ( 31 ) ( 202 ) 10

Structured finance:

RMBS 178 ( 65 ) 29 142

Other structured finance 45 2 — 47

Structured finance 223 ( 63 ) 29 189

Total $ 466 $ ( 94 ) $ ( 173 ) $ 199

Nine Months 2022

First Quarter 2023

Sector Net Expected Loss to be Paid (Recovered) as of December 31, 2022 Economic Loss

Development (Benefit) Net (Paid)

Net Expected Loss to be Paid (Recovered) as of September 30, 2022

Net Expected Loss to be Paid (Recovered) as of March 31, 2023

(in millions)

8 unchanged sentences

Total $ 522 $ 11 $ ( 16 ) $ 517

Nine Months 2021

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

First Quarter 2022

Sector Net Expected Loss to be Paid (Recovered) as of December 31, 2021 Economic Loss

Development (Benefit) Net (Paid)

Net Expected Loss to be Paid (Recovered) as of September 30, 2021

Net Expected Loss to be Paid (Recovered) as of March 31, 2022

(in millions)

12 unchanged sentences

Such amounts are recorded as reinsurance recoverable on paid losses in “other assets”.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The tables above include (a) LAE paid of $ 5 million, $ 5 million, $ 25 million and $ 15 million for third quarter 2022, third quarter 2021, nine months 2022 and nine months 2021, respectively, and (b) expected LAE to be paid of $ 11 million as of September 30, 2022 and $ 26 million as of December 31, 2021.

Ceded expected loss and LAE to be recovered (paid) was $( 2 ) million as of September 30, 2022 and $ 10 million as of December 31, 2021.

Selected U.S.

Public Finance Transactions

The primary components of expected loss to be paid (recovered) and/or economic loss development (benefit) as of September 30, 2022 and for the three and nine months ended 2022 are discussed below.

The Company insured general obligation bonds of the Commonwealth of Puerto Rico and various obligations of its related authorities and public corporations aggregating $ 2.1 billion net par outstanding as of September 30, 2022, all of which was BIG.

On March 15, 2022, the GO/PBA Plan, PRCCDA Modification, and PRIFA Modification were consummated, as described under “Exposure to Puerto Rico” in Note 3, Outstanding Exposure.

On July 8, 2022, the Company received from the Commonwealth, pursuant to the GO/PBA Plan and the terms of the HTA PSA, additional cash and CVIs.

On the HTA Effective Date, the Company also expects to receive additional recoveries in the form of cash and Toll Bonds.

For additional information regarding the Company’s Puerto Rico exposure, see “Exposure to Puerto Rico” in Note 3, Outstanding Exposure.

On February 25, 2015, a plan of adjustment resolving the bankruptcy filing of the City of Stockton, California under chapter 9 of the Bankruptcy Code became effective.

As of September 30, 2022, the Company’s net par outstanding subject to the plan consisted of $ 96 million of pension obligation bonds.

As part of the plan of adjustment, the City will repay claims paid on the pension obligation bonds from certain fixed payments and certain variable payments contingent on the City’s revenue growth.

The Company insures a large integrated healthcare system with net par of $ 820 million which was downgraded to BIG in third quarter 2022 due to its weak operating results and liquidity position.

The Company projects its total net expected loss to be paid across its troubled U.S.

public finance exposures as of September 30, 2022, including those mentioned above, to be $ 626 million, compared with $ 197 million as of December 31, 2021.

The economic loss development for U.S.

public finance transactions was $ 24 million during third quarter 2022 and was primarily attributable to healthcare and Puerto Rico exposures, partially offset by the effect of changes in discount rates.

The economic benefit for U.S.

public finance transactions was $ 16 million during nine months 2022, which was primarily attributable to changes in discount rates and higher projected revenues for certain exposures, partially offset by healthcare and Puerto Rico exposures.

The changes attributable to the Company’s Puerto Rico exposures reflect adjustments the Company made to the assumptions it used in its scenarios and valuation of certain recovery components based on the public information as discussed under “Exposure to Puerto Rico” in Note 3, Outstanding Exposure as well as nonpublic information related to its loss mitigation activities during the period.

The tables above include (a) net LAE paid of $ 3 million and $ 13 million for first quarter 2023 and first quarter 2022, respectively, and (b) net expected LAE to be paid of $ 9 million as of March 31, 2023 and $ 11 million as of December 31, 2022.

RMBS Loss Projections

4 unchanged sentences

The assumptions that the Company uses to project RMBS losses are shown in the sections below.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Economic Loss Development (Benefit)

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

13 unchanged sentences

The following table shows liquidation assumptions for various non-performing and re-performing categories.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

First Lien U.S.

RMBS Liquidation Rates

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Current but recently delinquent

21 unchanged sentences

Real Estate Owned

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

All 100 % 100 %

While the Company uses the liquidation rates above to project defaults of non-performing loans (including current loans that were recently modified or delinquent), it projects defaults on presently current loans by applying a conditional default rate (CDR) curve.

3 unchanged sentences

In the most heavily weighted scenario (the base scenario), after the 36 -month CDR plateau period, each transaction’s CDR is projected to improve over 12 months to a final CDR of 5 % of the plateau CDR.

In the base scenario, the Company assumes the final CDR will be reached 1.00 year after the 36 -month CDR plateau period.

In the base scenario, the Company assumes the final CDR will be reached one year after the 36 -month CDR plateau period.

Under the Company’s methodology, defaults projected to occur in the first 36 months represent defaults that can be attributed to loans that were recently modified or delinquent, or that are currently delinquent or in foreclosure, while the defaults projected to occur using the projected CDR trend after the first 36 -month period represent defaults attributable to borrowers that are currently performing or are projected to re-perform.

1 unchanged sentence

The Company assumes in the base scenario that recent (still historically elevated) loss severities will improve after loans with accumulated delinquencies and foreclosure cost are liquidated.

The Company is assuming in the base scenario that the recent levels generally will continue for another 18 months.

The Company is assuming in the base scenario that the recent levels generally will continue for

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

another 18 months.

The Company determines its initial loss severity based on actual recent experience.

2 unchanged sentences

The following table shows the range as well as the average, weighted by outstanding net insured par, for key assumptions used in the calculation of expected loss to be paid (recovered) for individual transactions for vintage 2004 - 2008 first lien U.S.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Key Assumptions in Base Scenario Expected Loss Estimates

First Lien U.S.

As of September 30, 2022 As of December 31, 2021

As of March 31, 2023 As of December 31, 2022

Range Weighted Average Range Weighted Average

24 unchanged sentences

The Company incorporates a recovery assumption into its reserving model to reflect observed trends in recoveries of deferred principal balances of modified first lien loans that had been previously written off.

For transactions where the Company has detailed loan information, the Company assumes that 20 % of the deferred loan balances will eventually be recovered upon sale of the collateral or refinancing of the loans.

For transactions where the Company has detailed loan information, the Company assumes, in the base scenario, that 20 % of the deferred loan balances will eventually be recovered upon sale of the collateral or refinancing of the loans.

In first quarter 2023, in light of recent volatility in interest rates, the mortgage market, and home prices, the Company also began incorporating a 10 % recovery of deferred principal balances in the pessimistic scenario and a 50 % recovery in the optimistic scenario.

The effect on expected losses of this refinement in methodology was less than $ 1 million.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

In estimating expected losses, the Company modeled and probability weighted sensitivities for first lien U.S.

2 unchanged sentences

The Company also stressed CPR and the speed of recovery of loss severity rates.

The Company probability weighted a total of five scenarios as of September 30, 2022 and December 31, 2021.

Total expected loss to be paid on all first lien U.S.

RMBS was $ 110 million and $ 167 million as of September 30, 2022 and December 31, 2021, respectively.

The $ 38 million economic benefit in third quarter 2022 for first lien U.S.

RMBS transactions was primarily attributable to the purchase of a loss mitigation security (see Note 7, Investments), changes in discount rates, a benefit on certain assumed RMBS transactions related to a settlement between a ceding company and a R&W provider, and improved transaction performance, partially offset by lower excess spread.

The $ 34 million economic benefit in nine months 2022 for first lien U.S.

RMBS transactions was primarily attributable to changes in discount rates, the purchase of

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

a loss mitigation security, lower assumed initial severity, improved performance in certain transactions and a benefit on certain assumed RMBS transactions related to a settlement between a ceding company and a R&W provider, partially offset by lower excess spread.

Certain transactions benefit from excess spread when they are supported by large portions of fixed rate assets (either originally fixed or modified to be fixed) but have insured floating rate debt linked to LIBOR.

The Company probability weighted a total of five scenarios as of March 31, 2023 and December 31, 2022.

An increase in projected LIBOR decreases excess spread, while lower LIBOR results in higher excess spread.

ICE Benchmark Administration (IBA) and the Financial Conduct Authority (FCA) have announced that LIBOR will be discontinued after June 30, 2023.

ICE Benchmark Administration (IBA) and the Financial Conduct Authority have announced that LIBOR will be discontinued after June 30, 2023.

The Company believes that the reference to LIBOR in such floating rate RMBS debt will be replaced, by operation of law in accordance with federal legislation enacted in March 2022, with a rate based on the Secured Overnight Finance Rate (SOFR).

The Company used a similar approach to establish its pessimistic and optimistic scenarios as of September 30, 2022 as it used as of December 31, 2021, increasing and decreasing the periods of stress from those used in the base scenario.

In the Company’s most stressful scenario where loss severities were assumed to rise and then recover over nine years and the initial ramp-down of the CDR was assumed to occur over 16 months, expected loss to be paid would increase from current projections by approximately $ 13 million for all first lien U.S.

The Company used a similar approach to establish its pessimistic and optimistic scenarios as of March 31, 2023 as it used as of December 31, 2022, increasing and decreasing the periods of stress from those used in the base scenario, but, as mentioned above, it updated the assumed recovery for deferred principal balances for the pessimistic and optimistic scenarios (to 10 % and 50 %, respectively) compared to December 31, 2022 (when 20 % was assumed in all scenarios).

In the Company’s most stressful scenario where 10 % of deferred principal balances were recovered, loss severities were assumed to rise and then recover over nine years and the initial ramp-down of the CDR was assumed to occur over 16 months, expected loss to be paid would increase from current projections by approximately $ 23 million for all first lien U.S.

RMBS transactions.

In the Company’s least stressful scenario where the CDR plateau was six months shorter ( 30 months, effectively assuming that liquidation rates would improve) and the CDR recovery was more pronounced (including an initial ramp-down of the CDR over eight months ), expected loss to be paid would decrease from current projections by approximately $ 8 million for all first lien U.S.

In the Company’s least stressful scenario where 50 % of deferred principal balances are recovered, the CDR plateau was six months shorter ( 30 months, effectively assuming that liquidation rates would improve) and the CDR recovery was more pronounced (including an initial ramp-down of the CDR over eight months ), expected loss to be paid would decrease from current projections by approximately $ 33 million for all first lien U.S.

RMBS transactions.

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RMBS transactions, the Company then calculates a CDR that will cause the targeted amount of liquidations to occur during the plateau period.

Prior to third quarter 2022, for the base scenario, the CDR (the plateau CDR) was held constant for six months .

Once the plateau period had ended, the CDR was assumed to gradually trend down in uniform increments to its final long-term steady state CDR.

(The long-term steady state CDR was calculated as the constant CDR that would have yielded the amount of losses originally expected at underwriting, subject to a floor.) In the base scenario, the time over which the CDR trended down to its final CDR was 28 months.

Therefore, the total stress period for second lien transactions was 34 months.

The Company has observed lower than expected default rates and longer liquidation timelines due to significant home price appreciation and special servicing activity which now favors modifications and foreclosure actions rather than charge-offs at 180 days delinquent.

In the third quarter 2022, the Company extended the time over which a portion of the delinquent loans default from six months to 36 months in the base scenario (conforming to the methodology used for first lien U.S.

RMBS transactions).

After the plateau period, as with first lien U.S.

RMBS transactions, the CDR trends down over one year to 5 % of the plateau CDR.

These changes in the shape of the CDR curve result in a longer period of stress defaults ( 48 months in the base scenario), but at lower default levels leading to lower overall levels of expected losses.

For the base scenario, the CDR (the plateau CDR) is held constant for 36 months.

Once the plateau period ends, the CDR is assumed to trend down in uniform increments for one year to its final long-term steady state CDR ( 5 % of original plateau).

HELOC loans generally permitted the borrower to pay only interest for an initial period (often ten years ) and, after that period, require the borrower to make both the monthly interest payment and a monthly principal payment.

This causes the borrower's total monthly payment to increase, sometimes substantially, at the end of the initial interest-only period.

A substantial number of loans in the Company’s insured transactions had been modified to extend the interest-only period to 15 years (mostly to 2022-2023), and there was uncertainty regarding the performance of these loans as they reset to full amortization.

Recently, the Company has observed the performance of the modified loans that have finally reset to full amortization (which represent the majority of extended loans), and noted low levels of delinquency, even with substantial increases in

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

monthly payments.

A substantial number of loans in the Company’s insured transactions had been modified to extend the interest-only period to 15 years.

The majority of the modified loans had reset to fully amortizing by the end of 2022, and most of the remaining loans will reset over the next several years.

This observed performance lowers the level of uncertainty regarding this modified cohort as the remainder continue to reset.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

When a second lien loan defaults, there is generally a low recovery.

The Company assumed, as of September 30, 2022 and December 31, 2021, that it will generally recover 2 % of future defaulting collateral at the time of charge-off, with additional amounts of post charge-off recoveries projected to come in over time.

The Company assumed, as of March 31, 2023 and December 31, 2022, that it will generally recover 2 % of future defaulting collateral at the time of charge-off, with additional amounts of post charge-off recoveries projected to come in over time.

A second lien on the borrower’s home may be retained in the Company’s second lien transactions after the loan is charged off and the loss applied to the transaction, particularly in cases where the holder of the first lien has not foreclosed.

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In instances where the Company is able to obtain information on the lien status of charged-off loans, it assumes there will be a certain level of future recoveries of the balance of the charged-off loans where the second lien is still intact.

The Company’s recovery assumption for charged-off loans is 30 %, as shown in the table below, based on observed trends and reasonable expectations of future recoveries.

The Company’s base scenario recovery assumption for charged-off loans is 30 %, as shown in the table below, based on observed trends and reasonable expectations of future recoveries.

Such recoveries are assumed to be received evenly over the next five years .

If the recovery rate decreases to 20 %, expected loss to be paid would increase from current projections by approximately $ 39 million.

If the recovery rate increases to 40 %, expected loss to be paid would decrease from current projections by approximately $ 39 million.

In first quarter 2023, in light of recent volatility in interest rates, the mortgage market, and home prices, as with the first lien deferred principal balances detailed earlier, the Company also began incorporating a 10 % recovery of charged-off loan balances in the pessimistic scenario and a 50 % recovery in the optimistic scenario.

The effect on expected losses of this refinement in methodology was less than $ 1 million.

The rate at which the principal amount of loans is prepaid may impact both the amount of losses projected as well as the amount of excess spread.

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In estimating expected losses, the Company modeled and probability weighted five scenarios, each with a different CDR curve applicable to the period preceding the return to the long-term steady state CDR.

The Company believes that the level of the elevated CDR and the length of time it will persist and the ultimate prepayment rate are the primary drivers behind the amount of losses the collateral will likely suffer.

The Company believes that the level of the elevated CDR and the length of time it will persist and the ultimate prepayment rate are the primary drivers of the amount of losses the collateral will likely suffer.

The following table shows the range as well as the average, weighted by net par outstanding, for key assumptions used in the calculation of expected loss to be paid (recovered) for individual transactions for vintage 2004 - 2008 HELOCs.

Key Assumptions in Base Scenario Expected Loss Estimates

As of September 30, 2022 As of December 31, 2021

As of March 31, 2023 As of December 31, 2022

Range Weighted Average Range Weighted Average

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Projected future recoveries on previously charged-off loans 30 % 30 %

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The Company continues to evaluate the assumptions affecting its modeling results.

The Company believes the most important driver of its projected second lien RMBS losses is the performance of its HELOC transactions.

Total net expected recovery for all second lien U.S.

RMBS was $ 58 million as of September 30, 2022 and $ 17 million as of December 31, 2021.

The economic benefit in third quarter 2022 was a benefit of $ 57 million, which was primarily driven by updates in the projected CDR curves, a benefit on certain assumed RMBS transactions related to a settlement between a ceding company and a R&W provider, improved performance of certain transactions, and higher recoveries for secured charged-off loans.

The economic benefit in nine months 2022 was $ 93 million, and was primarily due to improved performance of certain transactions, updates in the projected CDR curves, higher recoveries for secured charged-off loans, a benefit on certain assumed RMBS transactions related to a settlement between a ceding company and a R&W provider, and changes in discount rates, partially offset by lower excess spread.

The Company updated its assumptions related to the CDR plateau and ramp-down during the third quarter 2022.

The Company’s base scenario assumed a 36 -month CDR plateau and a 12 -month ramp-down (for a total stress period of 48 months), compared to a six-month CDR plateau and a 28 -month ramp-down (for a total stress period of 34 months) as of December 31, 2021.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company modeled scenarios with a longer period of elevated defaults and others with a shorter period of elevated defaults.

In the Company’s most stressful scenario, increasing the CDR plateau to 42 months and increasing the ramp-down by four months to 16 months (for a total stress period of 58 months) would decrease the expected recovery by approximately $ 1 million for HELOC transactions.

On the other hand, in the Company’s least stressful scenario, reducing the CDR plateau to 30 months and decreasing the length of the CDR ramp-down to eight months (for a total stress period of 38 months), and lowering the ultimate prepayment rate to 10 % would increase the expected recovery by approximately $ 2 million for HELOC transactions.

In the Company’s most stressful scenario, assuming 10 % recoveries on charged-off loans, increasing the CDR plateau to 42 months and increasing the ramp-down by four months to 16 months (for a total stress period of 58 months) would decrease the expected recovery by approximately $ 65 million for HELOC transactions.

On the other hand, in the Company’s least stressful scenario, assuming 50 % recoveries on charged-off loans, reducing the CDR plateau to 30 months and decreasing the length of the CDR ramp-down to eight months (for a total stress period of 38 months) and lowering the ultimate prepayment rate to 10 % would increase the expected recovery by approximately $ 66 million for HELOC transactions.

Structured Finance Excluding U.S.

The Company projected that its total net expected loss to be paid across its troubled structured finance exposures, excluding U.S.

RMBS, as of September 30, 2022 was $ 43 million.

RMBS, as of March 31, 2023 was $ 42 million.

The largest component of these structured finance losses were student loan securitizations issued by private issuers with $ 46 million in BIG net par outstanding.

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(i) the poor credit performance of private student loan collateral and high loss severities, or (ii) high interest rates on auction rate securities with respect to which the auctions have failed.

The Company also had exposure to troubled life insurance transactions with BIG net par of $ 40 million as of September 30, 2022.

Recovery Litigation

In the ordinary course of their respective businesses, certain of AGL’s subsidiaries are involved in litigation with third parties to recover insurance losses paid in prior periods or prevent or reduce losses in the future.

The impact, if any, of these and other proceedings on the amount of recoveries the Company receives and losses it pays in the future is uncertain, and the impact of any one or more of these proceedings during any quarter or year could be material to the Company’s financial statements.

The Company also had exposure to troubled life insurance transactions with BIG net par of $ 40 million as of March 31, 2023.

Recovery Litigation and Dispute Resolution

In the ordinary course of their respective businesses, certain of AGL’s subsidiaries are involved in litigation or other dispute resolution with third parties to recover insurance losses paid or return benefits received in prior periods or prevent or reduce losses in the future.

The impact, if any, of these and other proceedings on the amount of recoveries the Company ultimately receives and losses it pays in the future is uncertain, and the impact of any one or more of these proceedings during any quarter or year could be material to the Company’s financial statements..

The Company has asserted claims in a number of legal proceedings in connection with its exposure to Puerto Rico.

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See Note 6, Contracts Accounted for as Credit Derivatives, for amounts related to CDS and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for amounts that are accounted for as consolidated FG VIEs.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Earned Premiums

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

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____________________

(1) Nine months 2022 accelerations include $ 104 million related to the March Puerto Rico Resolutions.

(1) First quarter 2022 accelerations included $ 104 million related to PRCCDA, PRIFA and GO/PBA exposures.

See Note 3, Outstanding Exposure, for additional information.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Gross Premium Receivable,

Net of Commissions Payable on Assumed Business

First Quarter

(in millions)

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Foreign exchange gain (loss) on remeasurement 20 ( 29 )

Expected recovery of premiums previously written off — 4

Financial guaranty insurance premium receivable (1) 1,345 1,334

Specialty insurance premium receivable 1 1

September 30, $ 1,178 $ 1,378

Approximately 76 % and 78 % of gross premiums receivable, net of commissions payable at September 30, 2022 and December 31, 2021, respectively, are denominated in currencies other than the U.S.

March 31, $ 1,346 $ 1,335

Approximately 73 % and 74 % of gross premiums receivable, net of commissions payable at March 31, 2023 and December 31, 2022, respectively, are denominated in currencies other than the U.S.

dollar, primarily the pound sterling and euro.

The timing and cumulative amount of actual collections and net earned premiums may differ from those of expected collections and of expected net earned premiums in the table below due to factors such as foreign exchange rate fluctuations, counterparty collectability issues, accelerations, commutations, restructurings, changes in the consumer price index, changes in expected lives and new business.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Guaranty Insurance

Expected Future Premium Collections and Earnings

As of September 30, 2022

As of March 31, 2023

Future Gross Premiums

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(in millions)

2023 (April 1 - June 30) $ 32 $ 70

2023 (July 1 - September 30) 38 70

2023 (October 1 - December 31) 19 69

Subtotal 2023 89 209

2028-2032 379 925

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____________________

(1) Net of commissions payable.

(1) Net of assumed commissions payable.

(2) Net of reinsurance.

Selected Information for Financial Guaranty Insurance Policies

with Premiums Paid in Installments

September 30, 2022 December 31, 2021

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Selected Information for Financial Guaranty Insurance Policies with Premiums Paid in Installments

March 31, 2023 December 31, 2022

(dollars in millions)

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Loss reserves and salvage are discounted at risk-free rates for U.S.

dollar denominated financial guaranty insurance obligations that ranged from 2.98 % to 4.18 % with a weighted average of 3.97 % as of September 30, 2022 and 0.00 % to 1.98 % with a weighted average of 1.02 % as of December 31, 2021.

dollar denominated financial guaranty insurance obligations that ranged from 3.44 % to 4.87 % with a weighted average of 3.84 % as of March 31, 2023 and 3.82 % to 4.69 % with a weighted average of 4.15 % as of December 31, 2022.

The following tables provide information on net reserve (salvage), which includes loss and LAE reserves and salvage and subrogation recoverable, both net of reinsurance.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Reserve (Salvage) by Sector

Sector September 30, 2022 December 31, 2021

Sector March 31, 2023 December 31, 2022

(in millions)

8 unchanged sentences

Total $ 32 $ 37

Components of Net Reserve (Salvage)

September 30, 2022 December 31, 2021

(in millions)

Loss and LAE reserve $ 882 $ 869

Reinsurance recoverable on unpaid losses (1) ( 3 ) ( 5 )

Loss and LAE reserve, net 879 864

Salvage and subrogation recoverable ( 385 ) ( 801 )

Salvage and subrogation reinsurance payable (2) 1 16

Salvage and subrogation recoverable, net ( 384 ) ( 785 )

Net reserve (salvage) $ 495 $ 79

____________________

(1) Reported in “other assets” on the condensed consolidated balance sheets.

(2) Reported in “other liabilities” on the condensed consolidated balance sheets.

The table below provides a reconciliation of net expected loss to be paid (recovered) for financial guaranty insurance contracts to net expected loss to be expensed.

6 unchanged sentences

Financial Guaranty Insurance Contracts

As of September 30, 2022

As of March 31, 2023

(in millions)

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Net expected loss to be expensed (present value) $ 195

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table provides a schedule of the expected timing of net expected losses to be expensed.

1 unchanged sentence

This table excludes amounts related to FG VIEs, which are eliminated in consolidation.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Net Expected Loss to be Expensed

Financial Guaranty Insurance Contracts

As of September 30, 2022

As of March 31, 2023

(in millions)

2023 (April 1 - June 30) $ 3

2023 (July 1 - September 30) 3

2023 (October 1 - December 31) 3

Subtotal 2023 9

After 2042 12

Net expected loss to be expensed 195

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Total expected future loss and LAE $ 261

The following table presents the loss and LAE reported in the condensed consolidated statements of operations by sector for insurance contracts.

The following table presents the loss and LAE (benefit) reported in the condensed consolidated statements of operations by sector for insurance contracts.

Amounts presented are net of reinsurance.

Loss and LAE (Benefit) by Sector

Third Quarter Nine Months

First Quarter

Sector 2023 2022

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Structured finance:

RMBS ( 78 ) ( 48 ) $ ( 97 ) $ ( 54 )

Other structured finance 2 ( 1 )

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Loss and LAE (benefit) $ 4 $ 57

The primary difference between net economic loss development and the amount reported as “loss and LAE” in the consolidated statements of operations are that loss and LAE (benefit):

(1) considers deferred premium revenue in the calculation of loss reserves for financial guaranty insurance contracts;

(2) eliminates loss and LAE related to FG VIEs;

and (3) does not include estimated losses on credit derivatives.

The difference between public finance loss expense and economic benefit in nine months 2022 was primarily attributable to the release of unearned premium reserve associated with extinguished Puerto Rico policies that previously had expected losses.

The following tables provide information on financial guaranty insurance contracts categorized as BIG.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following tables provide information on financial guaranty insurance contracts categorized as BIG.

Financial Guaranty Insurance

BIG Transaction Loss Summary

As of September 30, 2022

As of March 31, 2023

Gross Net Total BIG

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Reserves (salvage) $ ( 158 ) $ 23 $ 164 $ 29 $ 29

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Financial Guaranty Insurance

22 unchanged sentences

Potential recoveries also include recoveries on certain investment grade credits, related mainly to exposures that were previously BIG and for which claims have been paid in the past.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Contracts Accounted for as Credit Derivatives

The portfolio of outstanding exposures discussed in Note 3, Outstanding Exposure, and Note 4, Expected Loss to be Paid (Recovered), includes contracts that are accounted for as insurance contracts, derivatives, and FG VIEs.

Amounts presented in this note relate only to contracts accounted for as derivatives.

See Note 5, Contracts Accounted for as Insurance for amounts that relate to contracts accounted for as insurance and Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles, for amounts that relate to contracts that are accounted for as FG VIEs.

The Company’s credit derivatives (financial guaranty contracts that meet the definition of a derivative in accordance with GAAP) are primarily CDS and also include interest rate swaps.

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The components of the Company’s credit derivative net par outstanding by sector are presented in the table below.

The estimated remaining weighted average life of credit derivatives was 12.9 years and 13.2 years as of September 30, 2022 and December 31, 2021, respectively.

The estimated remaining weighted average life of credit derivatives was 12.6 years and 12.8 years as of March 31, 2023 and December 31, 2022, respectively.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Credit Derivatives (1)

As of September 30, 2022 As of December 31, 2021

As of March 31, 2023 As of December 31, 2022

Sector Net Par

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____________________

(1) Expected loss to be paid was $ 4 million and $ 5 million as of September 30, 2022 and December 31, 2021, respectively.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

(1) Expected loss to be paid was $ 3 million as of both March 31, 2023 and December 31, 2022.

Distribution of Credit Derivative Net Par Outstanding by Internal Rating

As of September 30, 2022 As of December 31, 2021

As of March 31, 2023 As of December 31, 2022

Rating Category Net Par

9 unchanged sentences

Fair Value Gains (Losses) on Credit Derivatives

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

2 unchanged sentences

Fair value gains (losses) on credit derivatives $ 15 $ ( 3 )

During third quarter 2022, unrealized losses were generated primarily as a result of the wider asset spreads and decreased cost to buy protection on AGC, as the market cost of AGC’s credit protection decreased during the period.

For those CDS transactions that were pricing at or above their floor levels, when the cost of purchasing CDS protection on AGC, which management refers to as the CDS spread on AGC, decreased, the implied spreads that the Company (or another comparable entity) would expect to receive on these transactions increased.

During third quarter 2021, unrealized gains were generated primarily as a result of the termination of several CDS policies, primarily trust preferred securities transactions.

During nine months 2022, unrealized losses were generated primarily as a result of the wider asset spreads, partially offset by the increased cost to buy protection on AGC, changes in discount rates, decreases in exposures and payment of amounts related to certain structured finance exposures.

During nine months 2021, unrealized losses were generated primarily as a result of the decreased cost to buy protection on AGC, as the market cost of AGC’s credit protection decreased during the period.

These losses were partially offset by the price improvement of the underlying collateral and the termination of certain CDS policies.

The impact of changes in credit spreads will vary based upon the volume, tenor, interest rates, and other market conditions at the time these fair values are determined.

3 unchanged sentences

CDS Spread on AGC (in basis points)

As of September 30, 2022 As of December 31, 2021 As of September 30, 2021 As of December 31, 2020

As of March 31,

2023 As of December 31, 2022 As of March 31,

2022 As of December 31, 2021

Five-year CDS spread 83 63 71 49

1 unchanged sentence

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes to Condensed Consolidated Financial Statements (Unaudited)

Fair Value of Credit Derivative Assets (Liabilities)

and Effect of AGC Credit Spread

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in millions)

2 unchanged sentences

Net fair value of credit derivatives $ ( 148 ) $ ( 162 )

The fair value of CDS contracts as of September 30, 2022, before considering the benefit applicable to AGC’s credit spread, is a direct result of the relatively wider credit spreads under current market conditions compared to those at the time of underwriting for certain underlying credits with longer tenor.

Investment Portfolio

The investment portfolio consists of both externally and internally managed portfolios.

The fair value of CDS contracts as of March 31, 2023, before considering the benefit applicable to AGC’s credit spread, is a direct result of the relatively wider credit spreads under current market conditions compared to those at the time of underwriting for certain underlying credits with longer tenor.

The majority of the investment portfolio is managed by three outside managers and AssuredIM.

The Company has established investment guidelines for its investment managers regarding credit quality, exposure to a particular sector and exposure to a particular obligor within a sector.

The internally managed portfolio primarily consists of the Company’s investments in:

(i) loss mitigation securities;

(ii) securities managed under an Investment Management Agreement (IMA) with AssuredIM;

(iii) new recovery bonds and CVIs received in connection with the consummation of the March Puerto Rico Resolutions and the HTA PSA and (iv) other investments including certain fixed-maturity and short-term securities, and equity method investments.

The remainder of the investment portfolio primarily consists of (i) Loss Mitigation Securities;

(ii) New Recovery Bonds and CVIs received in connection with the consummation of the 2022 Puerto Rico Resolutions;

and (iii) other investments including certain fixed-maturity and short-term securities, and equity method investments.

Equity method investments primarily consist of generally less liquid alternative investments including:

an investment in renewable and clean energy and private equity funds.

The Company had unfunded commitments of $ 92 million as of September 30, 2022 related to certain of the Company’s alternative investments other than AssuredIM Funds.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The Company had unfunded commitments of $ 79 million as of March 31, 2023 related to certain of the Company’s alternative investments other than AssuredIM Funds.

Investment Portfolio

Carrying Value

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in millions)

3 unchanged sentences

AssuredIM managed 539 537

Fixed-maturity securities - Puerto Rico (2) 64 —

Fixed-maturity securities - Puerto Rico, trading (3) 393 —

Puerto Rico, New Recovery Bonds (2) 136 358

Fixed-maturity securities, trading - Puerto Rico, CVIs (2) 300 303

Short-term investments (3) 1,273 810

3 unchanged sentences

____________________

(1) 8.3 % and 7.5 % of fixed-maturity securities were rated BIG as of September 30, 2022 and December 31, 2021, respectively, consisting primarily of loss mitigation securities.

1.8 % and 0.9 % were not rated, as of September 30, 2022 and December 31, 2021, respectively.

(2) Represents new recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions.

These securities are not rated.

(3) Represents CVIs received in connection with the consummation of the March Puerto Rico Resolutions and the HTA PSA.

(1) 7.5 % and 7.4 % of fixed-maturity securities were rated BIG as of March 31, 2023 and December 31, 2022, respectively, consisting primarily of Loss Mitigation Securities.

2.9 % and 5.9 % were not rated, as of March 31, 2023 and December 31, 2022, respectively.

(2) These securities are not rated.

(4) Weighted average credit rating of AAA as of both September 30, 2022 and December 31, 2021, based on the lower of the Moody’s Investors Service, Inc.

(3) Weighted average credit rating of AAA as of both March 31, 2023 and December 31, 2022, based on the lower of the Moody’s Investors Service, Inc.

(Moody’s) and S&P Global Ratings, a division of Standard & Poor's Financial Services LLC (S&P) classifications.

Insurance Subsidiaries, through their jointly owned investment subsidiary, AGAS, are authorized to invest up to $ 750 million in AssuredIM Funds.

Insurance Subsidiaries, through their jointly owned investment subsidiary, AGAS, are authorized to invest up to $ 750 million in affiliated alternative investment funds, which currently consist of investments in AssuredIM Funds.

Adding inception-to-date distributed gains, the U.S.

Insurance Subsidiaries may invest a total of up to $ 810 million in AssuredIM Funds through AGAS.

As of September 30, 2022, the U.S.

Insurance Subsidiaries had total commitments to AssuredIM Funds of $ 755 million, of which $ 536 million represented net invested capital and $ 219 million was undrawn.

This capital was committed to several funds, each dedicated to a single strategy, including CLOs, asset-based finance, healthcare structured capital and municipal bonds.

As of September 30, 2022 and December 31, 2021, the fair value of AGAS’ interest in AssuredIM Funds was $ 574 million and $ 543 million, respectively.

AssuredIM Funds, in which AGAS (primarily) and other subsidiaries invest, and where the Company has been deemed to be the primary beneficiary, are not reported in “investments” on the condensed consolidated balance sheets, but rather, such AssuredIM Funds are consolidated and reported in “assets of consolidated investment vehicles” and “liabilities of consolidated investment vehicles,” with the portion not owned by AGAS and other subsidiaries presented as either redeemable or non-redeemable non-controlling interests.

See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

Accrued investment income, which is reported in “other assets,” was $ 72 million as of September 30, 2022 and $ 69 million as of December 31, 2021.

In nine months 2022 and nine months 2021, the Company did not write off any accrued investment income.

Insurance Subsidiaries may invest a total of up to $ 853 million in affiliated alternative investment funds.

As of March 31, 2023, the U.S.

Insurance Subsidiaries had total commitments to AssuredIM

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes to Condensed Consolidated Financial Statements (Unaudited)

Funds of $ 613 million, of which $ 366 million represented net invested capital and $ 247 million was undrawn.

This capital was committed to several funds, each dedicated to a single strategy, including CLOs, asset-based finance and healthcare structured capital.

As of March 31, 2023 and December 31, 2022, the net asset value (NAV) of investments in AssuredIM Funds was $ 396 million and $ 569 million, respectively.

The decline in the carrying value of AssuredIM Funds was primarily due to distributions from the municipal bond fund.

As discussed in Note 1, Business and Basis of Presentation, Sound Point Transaction, the U.S.

Insurance Subsidiaries agreed after the closing of the transactions contemplated by the Transaction Agreement to engage Sound Point as their sole alternative credit manager and to transition existing investments and commitments in AssuredIM Funds and make new investments in an aggregate amount totaling $ 1 billion over time, subject to regulatory approval for additional amounts, in funds, other vehicles and separately managed accounts managed by Sound Point as part of the Sound Point Transaction.

As of March 31, 2023, current investments and commitments in AssuredIM Funds that will transfer to Sound Point management totaled $ 393 million, and such amount will be applied to the $ 1 billion commitment described above.

The Company’s $ 853 million authorization is available for investment in funds, vehicles and separately managed accounts managed by Sound Point and for investment in healthcare strategies.

See Note 8, Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles.

Accrued investment income, which is reported in “other assets,” was $ 76 million as of March 31, 2023 and $ 71 million as of December 31, 2022.

In first quarter 2023 and first quarter 2022, the Company did not write off any accrued investment income.

Available-for-Sale Fixed-Maturity Securities by Security Type

As of September 30, 2022

As of March 31, 2023

Security Type Percent

2 unchanged sentences

Losses Estimated

Value AOCI (5)

with Credit Loss

Value Weighted

(dollars in millions)

Obligations of state and political subdivisions 43 % $ 3,264 $ ( 13 ) $ 23 $ ( 173 ) $ 3,101 $ ( 3 ) AA-

Obligations of state and political subdivisions 43 % $ 3,161 $ ( 14 ) $ 46 $ ( 96 ) $ 3,097 A+

government and agencies 1 94 — 1 ( 7 ) 88 AA+

9 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes to Condensed Consolidated Financial Statements (Unaudited)

Available-for-Sale Fixed-Maturity Securities by Security Type

4 unchanged sentences

Losses Estimated

with Credit Loss Weighted

Value Weighted

(dollars in millions)

Obligations of state and political subdivisions 43 % $ 3,386 $ ( 12 ) $ 290 $ ( 4 ) $ 3,660 $ — AA-

Obligations of state and political subdivisions 45 % $ 3,509 $ ( 14 ) $ 37 $ ( 138 ) $ 3,394 A

government and agencies 2 118 — 1 ( 8 ) 111 AA+

4 unchanged sentences

Asset-backed securities:

CLOs 6 457 — 1 — 458 — AA-

CLOs 6 449 — — ( 21 ) 428 A+

Other 5 423 ( 26 ) 22 ( 26 ) 393 CCC+

3 unchanged sentences

(1) Based on amortized cost.

(2) Ratings represent the lower of the Moody’s and S&P classifications, except for loss mitigation and certain other securities, which use internal ratings classifications.

(2) Ratings represent the lower of the Moody’s and S&P classifications, except for Loss Mitigation Securities and certain other securities, which use internal ratings classifications.

The Company’s portfolio primarily consists of high-quality, liquid instruments.

New recovery bonds received in connection with the consummation of the March Puerto Rico Resolutions are not rated.

New Recovery Bonds received in connection with the consummation of the 2022 Puerto Rico Resolutions are not rated.

(3) Includes securities issued by taxable universities and hospitals.

government-agency obligations were approximately 29 % and 31 % of mortgage-backed securities as of September 30, 2022 and December 31, 2021, respectively, based on fair value.

(5) Accumulated other comprehensive income (AOCI).

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

government-agency obligations were approximately 32 % and 30 % of mortgage-backed securities as of March 31, 2023 and December 31, 2022, respectively, based on fair value.

Gross Unrealized Loss by Length of Time

for Available-for-Sale Fixed-Maturity Securities for Which a Credit Loss was Not Recorded

As of September 30, 2022

As of March 31, 2023

Less than 12 months 12 months or more Total

15 unchanged sentences

Number of securities (1) 602 1,006 1,568

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Gross Unrealized Loss by Length of Time

11 unchanged sentences

RMBS 147 ( 9 ) 3 ( 1 ) 150 ( 10 )

CMBS 270 ( 11 ) — — 270 ( 11 )

Asset-backed securities:

CLOs 171 ( 7 ) 250 ( 14 ) 421 ( 21 )

Other 27 ( 2 ) — — 27 ( 2 )

government securities 65 ( 10 ) 30 ( 13 ) 95 ( 23 )

4 unchanged sentences

If a security appears in both categories, it is counted only once in the total column.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The Company considered the credit quality, cash flows, interest rate movements, ability to hold a security to recovery and intent to sell a security in determining whether a security had a credit loss.

The Company has determined that the unrealized losses recorded as of September 30, 2022 and December 31, 2021 were not related to credit quality, and in the case of nine months 2022, primarily attributable to rising interest rates.

In addition, as of September 30, 2022, the Company did not intend to and was not required to sell investments in an unrealized loss position prior to expected recovery in value.

As of September 30, 2022, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, 687 securities had unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2021, 23 securities had unrealized losses in excess of 10% of their carrying value.

The total unrealized loss for these securities was $ 450 million as of September 30, 2022 and $ 6 million as of December 31, 2021.

The amortized cost and estimated fair value of available-for-sale fixed-maturity securities by contractual maturity as of September 30, 2022 are shown below.

The Company has determined that the unrealized losses recorded as of March 31, 2023 and December 31, 2022 were related to higher interest rates rather than credit quality.

As of March 31, 2023, the Company did not intend to and was not required to sell investments in an unrealized loss position prior to expected recovery in value.

As of March 31, 2023, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, 482 securities had unrealized losses in excess of 10% of their carrying value, whereas as of December 31, 2022, 567 securities had unrealized losses in excess of 10% of their carrying value.

The total unrealized loss for these securities was $ 253 million as of March 31, 2023 and $ 329 million as of December 31, 2022.

The amortized cost and estimated fair value of available-for-sale fixed-maturity securities by contractual maturity as of March 31, 2023 are shown below.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Distribution of Available-for-Sale Fixed-Maturity Securities by Contractual Maturity

As of September 30, 2022

As of March 31, 2023

Cost Estimated

6 unchanged sentences

Total $ 7,359 $ 6,869

Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled $ 211 million as of September 30, 2022 and $ 243 million as of December 31, 2021.

The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements, in the amounts of $ 1,174 million and $ 1,231 million, based on fair value as of September 30, 2022 and December 31, 2021, respectively.

Income from Investment Portfolio

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Based on fair value, investments and other assets that are either held in trust for the benefit of third-party ceding insurers in accordance with statutory requirements, placed on deposit to fulfill state licensing requirements, or otherwise pledged or restricted, totaled $ 229 million as of March 31, 2023 and $ 222 million as of December 31, 2022.

The investment portfolio also contains securities that are held in trust by certain AGL subsidiaries or otherwise restricted for the benefit of other AGL subsidiaries in accordance with statutory and regulatory requirements in the amounts of $ 1,146 million and $ 1,169 million based on fair value as of March 31, 2023 and December 31, 2022, respectively.

Income from Investments

Net investment income is a function of the yield that the Company earns on available-for-sale fixed-maturity securities and short-term investments, and the size of such portfolio.

The investment yield is a function of market interest rates at the time of investment as well as the type, credit quality and maturity of the securities in this portfolio.

Puerto Rico CVIs are classified as trading with changes in fair value reported in the condensed consolidated statements of operations.

Puerto Rico CVIs in the investment portfolio are classified as trading securities.

Equity in earnings (losses) of investees represents the Company’s interest in the earnings of its equity method investments.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Income from Investment Portfolio

Third Quarter Nine Months

2022 2021 2022 2021

Income from Investments

First Quarter

(in millions)

10 unchanged sentences

(1) Represents interest income on a portfolio of CLOs and municipal bonds managed by AssuredIM under an IMA.

(2) Fair value losses on trading securities pertaining to securities still held as of September 30, 2022 were $ 2 million for third quarter 2022 and $ 18 million for nine months 2022.

(3) Fair value gains (losses) on investments where the fair value option (FVO) was elected utilizing the net asset value (NAV) as a practical expedient were $ 13 million in third quarter 2021, $( 3 ) million in nine months 2022, and $ 39 million in nine months 2021.

(2) Fair value losses on trading securities pertaining to securities still held as of March 31, 2023 were $ 2 million for first quarter 2023.

Fair value losses on trading securities pertaining to securities still held as of March 31, 2022 were $ 4 million for first quarter 2022.

(3) Fair value gains (losses) on investments where the fair value option (FVO) was elected utilizing the NAV as a practical expedient were $ 1 million in first quarter 2023 and $ 3 million in first quarter 2022.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Realized Investment Gains (Losses)

2 unchanged sentences

Net Realized Investment Gains (Losses)

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

Gross realized gains on sales available-for-sale securities $ — $ — $ — $ 2

Gross realized losses on sales available-for-sale securities (1) ( 10 ) — ( 33 ) ( 2 )

Net foreign currency gains (losses) — ( 2 ) ( 3 ) —

Change in credit impairment and intent to sell ( 4 ) 5 ( 13 ) 1

Gross realized gains on sales of available-for-sale securities (1) $ 12 $ —

Gross realized losses on sales of available-for-sale securities (2) ( 9 ) ( 2 )

Change in allowance for credit losses and intent to sell ( 5 ) ( 5 )

Other net realized gains (losses) (3) — 10

1 unchanged sentence

____________________

(1) Third quarter 2022 and nine months 2022 related primarily to sales of bonds received as part of the March Puerto Rico Resolutions.

(2) Net realized gains in nine months 2022 related primarily to the sale of one of the Company’s alternative investments.

The proceeds from sales of fixed-maturity securities classified as available-for-sale were $ 207 million in third quarter 2022, $ 560 million in nine months 2022 and $ 222 million in nine months 2021.

There were no sales of fixed-maturity securities classified as available-for-sale in third quarter 2021.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The following table presents the roll forward of the credit losses on available-for-sale fixed-maturity securities for which the Company has recognized an allowance for credit losses in 2022 and 2021.

Roll Forward of Credit Losses for Available-for-Sale Fixed-Maturity Securities

Third Quarter Nine Months

2022 2021 2022 2021

(1) First quarter 2023 related primarily to sales of New Recovery Bonds received as part of the 2022 Puerto Rico Resolutions.

(2) First quarter 2023 related primarily to sales in externally managed portfolio and New Recovery Bonds received as part of the 2022 Puerto Rico Resolutions.

(3) First quarter 2022 net realized gains related primarily to the sale of one of the Company’s alternative investments.

The following table presents the roll forward of allowance for the credit losses on available-for-sale fixed-maturity securities.

Roll Forward of Allowance for

Credit Losses for Available-for-Sale Fixed-Maturity Securities

First Quarter

(in millions)

Balance, beginning of period $ 65 $ 42

Additions on securities for which credit impairments were not previously recognized 1 — 4 1

Additions from purchases of securities accounted for as purchased financial assets with credit deterioration 2 — 2 —

Additions (reductions) on securities for which credit impairments were previously recognized 3 ( 4 ) 9 ( 2 )

Reductions for securities sold and other settlements (1) — — — ( 42 )

Additions for securities for which credit losses were not previously recognized — 4

Additions (reductions) for securities for which credit losses were previously recognized 4 1

Balance, end of period $ 69 $ 47

(1) Primarily attributable to the sale of a security with a $ 42 million credit allowance in nine months 2021.

The Company recorded credit loss expenses of $ 4 million and $ 13 million in third quarter 2022 and nine months 2022, respectively.

The Company recorded a benefit in credit loss of $ 4 million and $ 1 million in third quarter 2021 and nine months 2021, respectively.

During third quarter 2022, the Company purchased a loss mitigation security with a fair value of $ 22 million that was accounted for as a purchased security with credit deterioration.

At acquisition, this security had an unpaid principal on remaining collateral of $ 31 million, an allowance for credit losses of $ 2 million, and a non-credit related discount of $ 7 million.

The Company did not purchase any securities with credit deterioration in the first half of 2022 or nine months 2021.

The Company recorded credit loss expenses of $ 4 million and $ 5 million in first quarter 2023 and first quarter 2022, respectively.

The Company did not purchase any securities with credit deterioration in first quarter 2023 or first quarter 2022.

Most of the Company’s securities with credit deterioration are Loss Mitigation Securities.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles

12 unchanged sentences

As part of the terms of its financial guaranty contracts, the insurance subsidiaries, under their insurance contracts, obtain certain protective rights with respect to the VIE that give them additional controls over a VIE.

These protective rights are

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

triggered by the occurrence of certain events, such as failure to be in compliance with a covenant due to poor deal performance or a deterioration in a servicer or collateral manager’s financial condition.

These protective rights are triggered by the occurrence of certain events, such as failure to be in compliance with a covenant due to poor deal performance or a deterioration in a servicer or collateral manager’s financial condition.

At deal inception, the insurance subsidiaries typically are not deemed to control the VIE;

8 unchanged sentences

The change in fair value of all structured finance and other FG VIEs assets and liabilities is reported in “fair value gains (losses) on FG VIEs” in the condensed consolidated statement of operations, except for the change in fair value attributable to change in instrument-specific credit risk (ISCR) on the structured finance and other FG VIE liabilities, which is reported in other comprehensive income (OCI).

As of September 30, 2022 and December 31, 2021, the Company consolidated 24 and 25 structured finance and other FG VIEs, respectively.

During nine months 2022, one FG VIE was consolidated and two FG VIEs were deconsolidated.

During nine months 2021, one FG VIE was deconsolidated.

There were no other consolidations or deconsolidations for the periods presented.

As of both March 31, 2023 and December 31, 2022, the Company consolidated 25 structured finance and other FG VIEs.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Puerto Rico Trusts

As of September 30, 2022, the Company consolidated six custodial trusts established as part of the GO/PBA Plan (Puerto Rico Trusts) discussed in Note 3, Outstanding Exposure, Exposures to Puerto Rico.

With respect to certain insured securities covered by the GO/PBA Plan, insured bondholders were permitted to elect to receive custody receipts that represent an interest in the legacy insurance policy plus cash, new recovery bonds and CVIs (in aggregate, Plan Consideration) that constitute distributions under the GO/PBA Plan.

For those who made this election, distributions of Plan Consideration are immediately passed through to insured bondholders under the custody receipts to the extent of any cash or proceeds of new securities held in the custodial trust and are applied to make payments and/or prepayments of amounts due under the legacy insured bonds.

As of March 31, 2023 and December 31, 2022, the Company consolidated 45 custodial trusts established as part of the 2022 Puerto Rico Resolutions (Puerto Rico Trusts) discussed in Note 3, Outstanding Exposure, Exposure to Puerto Rico.

With respect to certain insured securities covered by the 2022 Puerto Rico Resolutions, insured bondholders were permitted to elect to receive custody receipts that represent an interest in the legacy insurance policy plus cash, New Recovery Bonds and/or CVIs that constitute distributions under the 2022 Puerto Rico Resolutions.

(At least one separate custodial trust was set up for each legacy insured bond, and the trusts are deconsolidated as each is paid off.) For those who made this election, distributions of Plan Consideration are immediately passed through to insured bondholders under the custody receipts to the extent of any cash or proceeds of new securities held in the custodial trust and are applied to make payments and/or prepayments of amounts due under the legacy insured bonds.

In the case of insured bondholders who elected to receive custody receipts, the Company retains the right to satisfy its obligations under the insurance policy with respect to the related legacy insured bonds at any time thereafter, with 30 days’ notice, by paying 100% of the then outstanding principal amount of insured bonds plus accrued interest.

The Company consolidated the Puerto Rico Trusts as its insurance subsidiaries are deemed to be the primary beneficiary given their power to collapse these trusts.

The Company consolidated the Puerto Rico Trusts as its insurance subsidiaries are deemed to be the primary beneficiary given its power to collapse these trusts.

The assets within the Puerto Rico Trusts are classified as follows:

new recovery bonds as available-for-sale securities ($ 21 million fair value, $ 24 million amortized cost as of September 30, 2022) and CVIs as trading securities ($ 6 million fair value as of September 30, 2022, $ 1 million fair value losses on trading securities for nine months 2022).

The new recovery bonds and CVIs have maturity dates ranging from 2023 to 2046.

For the measurement of liabilities of the Puerto Rico Trusts, the Company elected the FVO in order to simplify the accounting for these instruments.

Investment income on the new recovery bonds, unrealized gains and losses on the CVIs and the change in fair value of the Puerto Rico Trusts’ liabilities, which are all with recourse, are all reported in “fair value gains (losses) on FG VIEs” on the condensed consolidated statement of operations, except for the change in fair value attributable to change in ISCR on the Puerto Rico Trusts’ liabilities, which is reported in OCI.

Unrealized gains and losses on the new recovery bonds are reported in OCI.

During nine months 2022, the consolidation of the nine Puerto Rico Trusts resulted in a $ 4 million loss on consolidation and the deconsolidation of three Puerto Rico Trusts resulted in a $ 1 million loss, which were also reported in “fair value gains (losses) on FG VIEs.”

New Recovery Bonds as available-for-sale securities ($ 211 million fair value, $ 204 million amortized cost as of March 31, 2023 and $ 204 million fair value, $ 204 million amortized cost as of December 31, 2022) and CVIs as trading securities ($ 5 million fair value as of both March 31, 2023 and December 31, 2022).

As of March 31, 2023, the available-for-sale securities had gross unrealized gains of $ 10 million and gross unrealized losses of $ 3 million.

Twelve securities in the Puerto Rico Trusts were in a gross unrealized loss position totaling $ 3 million and had a fair value of $ 21 million.

All of these securities were in a continuous unrealized loss position for more than 12 months.

As of December 31, 2022, the available-for-sale securities had gross unrealized gains of $ 4 million and gross unrealized losses of $ 4 million.

Fourteen securities in the Puerto Rico Trusts were in a gross unrealized loss position totaling $ 4 million and had a fair value of $ 110 million.

All of these securities were in a continuous unrealized loss position for less than 12 months.

The Company has determined that the unrealized losses recorded as of March 31, 2023 and December 31, 2022 were primarily attributable to the change in interest rates, rather than credit quality.

As of March 31, 2023 and December 31, 2022, the Company did not intend to and was not required to sell these investments prior to an expected recovery in value.

As of March 31, 2023 and December 31, 2022, of the securities in an unrealized loss position for which an allowance for credit loss was not recorded, six and eight securities, respectively, had unrealized losses in excess of 10% of their carrying value.

The total unrealized loss for these securities was $ 2 million and $ 3 million as of March 31, 2023 and December 31, 2022, respectively.

The amortized cost and estimated fair value of available-for-sale New Recovery Bonds by contractual maturity as of March 31, 2023 are shown below.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

New Recovery Bonds in FG VIEs’ Assets

Distribution by Contractual Maturity

As of March 31, 2023

Cost Estimated

(in millions)

Due within one year $ 1 $ 1

Due after one year through five years 6 6

Due after five years through 10 years 42 43

Due after 10 years 155 161

Total $ 204 $ 211

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes to Condensed Consolidated Financial Statements (Unaudited)

Components of FG VIE Assets and Liabilities

Net fair value gains and losses on FG VIEs are expected to reverse to zero by maturity of the FG VIEs’ debt, except for net premiums received and net claims paid by the insurance subsidiaries under the financial guaranty insurance contract.

The Company’s estimate of expected loss to be paid (recovered) for FG VIEs is included in Note 4, Expected Loss to be Paid (Recovered).

The table below shows the carrying value of all of the consolidated FG VIEs’ assets and liabilities in the condensed consolidated balance sheets, segregated by the types of assets that collateralize the respective debt obligations for FG VIEs’ liabilities.

The table below shows the carrying value of FG VIEs’ assets and liabilities segregated by type of collateral.

Consolidated FG VIEs by Type of Collateral

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in millions)

2 unchanged sentences

RMBS second lien 30 30

Puerto Rico Trusts’ securities 26 —

Puerto Rico Trusts’ assets (includes $ 215 and $ 209 at fair value) (1)

Total FG VIEs’ assets $ 415 $ 416

7 unchanged sentences

Total FG VIEs’ liabilities without recourse $ 12 $ 13

The change in the ISCR of the FG VIEs’ assets for which the Company elected the FVO (FG VIEs’ assets at FVO) held as of September 30, 2022 that was reported in the condensed consolidated statements of operations for third quarter 2022 and nine months 2022 were gains of $ 15 million and $ 11 million, respectively.

The change in the ISCR of the FG VIEs’ assets at FVO held as of September 30, 2021 were gains of $ 5 million and $ 9 million for third quarter 2021 and nine months 2021, respectively.

____________________

(1) Includes $ 2 million of cash as of December 31, 2022.

The change in the ISCR of the FG VIEs’ assets for which the Company elected the FVO (FG VIEs’ assets at FVO) held as of March 31, 2023 that was reported in the condensed consolidated statements of operations for first quarter 2023 was a loss of $ 1 million.

The change in the ISCR of the FG VIEs’ assets at FVO held as of March 31, 2022 was a loss of $ 5 million for first quarter 2022.

The ISCR amount is determined by using expected cash flows at the original date of consolidation, discounted at the effective yield, less current expected cash flows discounted at that same original effective yield.

The inception-to-date change in fair value of the FG VIEs’ liabilities with recourse (all of which are measured at fair value under the FVO) attributable to the ISCR is calculated by holding all current period assumptions constant for each security and isolating the effect of the change in the insurance subsidiaries’ CDS spread from the most recent date of consolidation to the current period.

In general, if the insurance subsidiaries’ CDS spread tightens, more value will be assigned to insurance subsidiaries’ credit;

however, if the insurance subsidiaries’ CDS spread widens, less value is assigned to the insurance subsidiaries’ credit.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes to Condensed Consolidated Financial Statements (Unaudited)

Selected Information for FG VIEs’ Assets and Liabilities

Measured under the FVO

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in millions)

7 unchanged sentences

(1) FG VIEs’ liabilities with recourse will mature at various dates ranging from 2023 through 2041.

During nine months 2022, the Company recorded an out-of-period adjustment totaling $ 6.6 million in pre-tax income and $ 5.2 million in net income attributable to AGL.

The out-of-period adjustment related to the correction of the fair value of FG VIE.

CIVs consist of certain AssuredIM Funds, CLOs and CLO warehouses in which the Company is the primary beneficiary.

CIVs consist of certain AssuredIM Funds, CLOs and CLO warehouses for which the Company is the primary beneficiary or has a controlling interest.

The Company consolidates investment vehicles when it is deemed to be the primary beneficiary, based on its power to direct the most significant activities of each VIE and its level of economic interest in the entities.

6 unchanged sentences

Number of Consolidated CIVs by Type

CIV Type September 30, 2022 December 31, 2021

CIV Type March 31, 2023 December 31, 2022

Funds (1) 7 8

CLO warehouses 4 4

1 unchanged sentence

____________________

(1) As of September 30, 2022 two CIVs were voting interest entities, and as of December 31, 2021 one CIV was a voting interest entity.

(1) One fund was deconsolidated in first quarter 2023.

(2) As of March 31, 2023, one CIV was a voting interest entity, and as of December 31, 2022, two CIVs were voting interest entities.

Certain funds meet the criteria for a voting interest entity because the Company possesses substantially all of the economics and all of the decision-making authority.

The table below summarizes the change in the number of consolidated CIVs during each of the periods.

During nine months 2022 and nine months 2021, two and three , respectively, consolidated CLO warehouses were securitized and became CLOs.

During both first quarter 2023 and first quarter 2022 no consolidated CLO warehouses became CLOs.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Number of Consolidated CIVs

Beginning of year 20 11

Consolidated 4 6

Deconsolidated (1) ( 2 ) ( 1 )

September 30, 22 16

____________________

(1) During nine months 2022 the Company deconsolidated a CLO with assets and liabilities of $ 417 million.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Assets and Liabilities of CIVs

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in millions)

2 unchanged sentences

Equity securities and warrants 339 434

Obligations of state and political subdivisions — 101

Corporate securities 93 96

10 unchanged sentences

Warehouse financing debt, FVO (3) 169 313

Securities sold short, at fair value — 41

Due to brokers and counterparties 75 112

2 unchanged sentences

____________________

(1) Includes investments in AssuredIM Funds and other affiliated entities of $ 394 million and $ 223 million as of September 30, 2022 and December 31, 2021, respectively.

Includes assets and liabilities of voting interest entities as of September 30, 2022 of $ 69 million and $ 2 million, respectively, and assets of $ 12 million as of December 31, 2021.

(2) The weighted average maturity of CLO obligations was 6.5 years as of September 30, 2022 and 6.6 years as of December 31, 2021.

The weighted average interest rate of CLO obligations was 3.9 % as of September 30, 2022 and 1.8 % as of December 31, 2021.

(1) Includes investments in AssuredIM Funds and other affiliated entities of $ 260 million and $ 392 million as of March 31, 2023 and December 31, 2022, respectively.

Includes assets of a voting interest entity as of March 31, 2023 of $ 38 million, and assets and liabilities of voting interest entities of $ 58 million and $ 1 million, respectively, as of December 31, 2022.

(2) The weighted average maturity of CLO obligations was 5.9 years as of March 31, 2023 and 6.2 years as of December 31, 2022.

The weighted average interest rate of CLO obligations was 6.1 % as of March 31, 2023 and 5.3 % as of December 31, 2022.

CLO obligations have stated final maturity dates from 2034 to 2035.

(3) The weighted average maturity of warehouse financing debt of CLO warehouses was 1.5 years as of September 30, 2022 and 1.8 years as of December 31, 2021.

The weighted average interest rate of warehouse financing debt of CLO warehouses was 2.6 % as of September 30, 2022 and 1.1 % as of December 31, 2021.

(3) The weighted average maturity of warehouse financing debt of CLO warehouses was 0.5 years as of March 31, 2023 and 1.9 years as of December 31, 2022.

The weighted average interest rate of warehouse financing debt of CLO warehouses was 5.0 % as of March 31, 2023 and 4.5 % as of December 31, 2022.

Warehouse financing debt will mature at various dates from 2023 to 2031.

(4) Negative cash as of March 31, 2023 is due to reporting the distribution of certain cash by an AssuredIM Fund to AGAS in the current period, while reporting the receipt of cash as a result of an investment sale by an AssuredIM Fund on a lag.

The “equity securities and warrants” category in the table above includes $ 127 million as of December 31, 2022 related to a consolidated feeder’s investment in a municipal master fund that was unwound in January 2023 based on the December 31, 2022 valuation.

On January 31, 2023, the fund distributed substantially all of its available cash to AGAS and other investors in the fund.

As of December 31, 2022, other liabilities in the table above include redeemable NCI.

These liabilities were settled in first quarter 2023.

As of March 31, 2023, the CIVs had unfunded commitments to invest $ 453 million.

As of March 31, 2023 and December 31, 2022, the CIVs included derivative contracts with notional amounts totaling $ 39 million and $ 46 million, respectively, and average notional amounts of $ 43 million and $ 47 million, respectively.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The Company has an investment structure, where it invests with other co-investors in a municipal bond feeder fund.

In this structure, the invested capital of one or more feeder funds purchases ownership interests in another fund, referred to as a master fund.

The master fund utilizes this invested capital and, in certain cases, other debt financing, to purchase various classes of assets on behalf of its investors.

The master fund’s investment objective is to generate attractive risk adjusted absolute returns by investing in municipal bonds, both investment grade and high-yield, taxable and tax-exempt as well as related investment and derivative products to hedge interest rate risk.

The Company consolidates the feeder fund, a VIE.

The feeder fund does not consolidate the master fund.

Rather, because the feeder fund is an investment company, specialized industry accounting for investment companies requires it to measure its investments (i.e., limited partnership interests) at fair value through net income.

The Company has elected to apply the NAV practical expedient to fair value measurement to measure the feeder’s proportionate share of the net assets of the master fund.

The consolidated feeder’s investment in this master fund totaled $ 125 million as of September 30, 2022 and is included in the table above in the caption “equity securities and warrants”.

The master fund had gross assets of $ 150 million and gross liabilities of $ 26 million, as of September 30, 2022.

Noncontrolling Interest in CIVs

Noncontrolling interest in CIVs represents the proportion of the consolidated funds not owned by the Company, and includes ownership interests of third parties, employees, and former employees.

The majority of the noncontrolling interest is non-redeemable and presented on the statement of shareholders’ equity.

The table below presents the rollforward of redeemable noncontrolling interest in CIVs.

Redeemable Noncontrolling Interest in CIVs

Third Quarter Nine Months

2022 2021 2022 2021

(in millions)

Beginning balance $ 21 $ 21 $ 22 $ 21

Net income (loss) attributable to the redeemable noncontrolling interest — — ( 1 ) —

Contributions — — 21 —

Distributions — — ( 21 ) —

September 30, $ 21 $ 21 $ 21 $ 21

As of September 30, 2022, the CIVs had $ 442 million commitments to invest.

As of September 30, 2022 and December 31, 2021, the CIVs included derivative contracts with notional amounts totaling $ 45 million and $ 49 million, respectively, and average notional amounts of $ 47 million and $ 34 million, respectively.

The fair value of derivative contracts is reported in the “assets of CIVs” or “liabilities of CIVs” in the condensed consolidated balance sheets.

Notes to Condensed Consolidated Financial Statements (Unaudited)

value of derivative contracts is reported in the “assets of CIVs” or “liabilities of CIVs” in the condensed consolidated balance sheets.

The net change in fair value is reported in “fair value gains (losses) on CIVs” in the condensed consolidated statements of operations.

The net change in fair value of derivative contracts were gains of $ 7 million for nine months 2022, and $ 1 million for nine months 2021.

The net change in fair value of derivative contracts were gains of $ 4 million in first quarter 2022.

Certain of the CIVs have entered into financing arrangements with financial institutions, generally to provide liquidity during the CLO warehouse stage.

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Collateral within each investment vehicle is also available only against borrowings by that investment vehicle and not against the borrowings of other investment vehicles or other Assured Guaranty subsidiaries.

As of September 30, 2022, these credit facilities had varying maturities ranging from 2023 to 2031 with the aggregate principal amount not exceeding $ 1.5 billion.

The available commitment was based on the amount of equity contributed to the warehouse which was $ 337 million.

As of September 30, 2022, $ 206 million was drawn under credit facilities with interest rates ranging from 3-month Euro Interbank Offered Rate (Euribor) plus 150 basis points (bps) to 3-month SOFR plus 150 bps (with a floor on Euribor of zero ).

The CLO warehouses were in compliance with all financial covenants as of September 30, 2022.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

As of September 30, 2022, a consolidated healthcare fund was a party to a credit facility (jointly with another healthcare fund that was not consolidated) with a maturity date of December 29, 2023 with the aggregate principal amount not to exceed $ 110 million jointly and $ 71 million individually for the consolidated healthcare fund.

The available commitment was based on the amount of equity contributed to the funds.

As of September 30, 2022, $ 62 million was drawn by the consolidated fund under the credit facility with an interest rate of Prime (with a Prime floor of 3 %).

The fund was in compliance with all financial covenants as of September 30, 2022.

During nine months 2022, the Company recorded an out-of-period adjustment totaling $ 2.1 million in pre-tax income and $ 1.7 million in net income attributable to AGL.

The out-of-period adjustments related to an incorrect elimination of the foreign exchange remeasurement on the portion of consolidated CLOs that are owned by other Assured Guaranty subsidiaries.

As of March 31, 2023, these credit facilities had varying maturities ranging from 2023 to 2031 with the aggregate principal amount not exceeding $ 1.6 billion.

The available commitments were based on the amount of equity contributed to the warehouses which was $ 252 million.

As of March 31, 2023, $ 138 million was drawn under credit facilities with interest rates ranging from 3-month Term SOFR plus 150 basis points (bps) to 3-month Euro InterBank Offered Rate (Euribor) plus 250 bps (with a floor on Euribor of zero ).

The CLO warehouses were in compliance with all financial covenants as of March 31, 2023.

As of March 31, 2023, a consolidated healthcare fund was a party to a credit facility (jointly with another healthcare fund that was not consolidated) with a maturity date of December 29, 2023 with the aggregate principal amount not to exceed $ 110 million jointly and $ 71 million individually for the consolidated healthcare fund.

The available commitment was based on the capital committed to the funds.

As of March 31, 2023, $ 28 million was drawn by the consolidated fund under the credit facility with an interest rate of Prime (with a Prime floor of 3 %).

The fund was in compliance with all financial covenants as of March 31, 2023.

Noncontrolling Interest in CIVs

NCI represents the proportion of the consolidated funds not owned by the Company and includes ownership interests of third parties, employees, and former employees.

The NCI is non-redeemable and presented on the statement of shareholders’ equity.

Other Consolidated VIEs

In certain instances where the Company consolidates a VIE that was established as part of a loss mitigation negotiated settlement that results in the termination of the original financial guaranty insurance or insured credit derivative contract, the Company classifies the assets and liabilities of that VIE in the line items that most accurately reflect the nature of such assets and liabilities, as opposed to within FG VIEs’ assets and FG VIEs’ liabilities.

The largest of these VIEs had assets of $ 85 million and liabilities of $ 14 million as of September 30, 2022, and assets of $ 96 million and liabilities of $ 11 million as of December 31, 2021, primarily reported in “investments” and “credit derivative liabilities” on the condensed consolidated balance sheets.

In certain instances where the Company consolidates a VIE that was established as part of a loss mitigation negotiated settlement that results in the termination of the obligations under the original financial guaranty insurance or insured credit derivative contract, the Company classifies the assets and liabilities of that VIE in the line items that most accurately reflect the nature of such assets and liabilities, as opposed to within FG VIEs’ assets and FG VIEs’ liabilities.

The largest of these VIEs had assets of $ 89 million and liabilities of $ 10 million as of March 31, 2023, and assets of $ 86 million and liabilities of $ 12 million as of December 31, 2022, primarily reported in “investments” and “credit derivative liabilities” on the condensed consolidated balance sheets.

Non-Consolidated VIEs

As described in Note 3, Outstanding Exposure, the Company monitors all policies in the insured portfolio.

Of the approximately 16 thousand policies monitored as of September 30, 2022, approximately 14 thousand policies are not within the scope of FASB ASC 810 because these financial guaranties relate to the debt obligations of governmental organizations or financing entities established by a governmental organization.

Of the approximately 15 thousand policies monitored as of March 31, 2023, approximately 14 thousand policies are not within the scope of FASB ASC 810 because these financial guaranties relate to the debt obligations of governmental organizations or financing entities established by a governmental organization.

The majority of the remaining policies involve transactions where the Company is not deemed to currently have control over the FG VIEs’ most significant activities.

With respect to structured finance and other FG VIEs, as of September 30, 2022 and December 31, 2021, the Company identified 63 and 69 policies, respectively, that contain provisions and experienced events that may trigger consolidation.

Based on management’s assessment of these potential triggers or events, the Company consolidated 24 and 25 structured finance and other FG VIEs as of September 30, 2022 and December 31, 2021, respectively.

In addition, as of September 30, 2022 the Company consolidated six Puerto Rico Trusts.

The Company’s exposure through its financial guaranties with respect to debt obligations of FG VIEs is included within net par outstanding in Note 3, Outstanding Exposure.

As of March 31, 2023 and December 31, 2022, the Company identified 86 and 85 policies, respectively, that contain provisions and experienced events that may trigger consolidation.

See above for information on VIEs that were consolidated based on management’s assessment of these potential triggers or events.

The Company manages funds and CLOs that have been determined to be VIEs in which the Company concluded that it is not the primary beneficiary because it lacks a controlling financial interest.

As such, the Company does not consolidate these entities.

The Company’s equity interests, excluding the feeder fund’s investment in the master fund, in these entities are reported in “other invested assets” on the condensed consolidated balance sheets.

The maximum exposure to loss is limited to the Company’s investment in equity interests (which is less than $ 1 million as of both September 30, 2022 and December 31, 2021) as well as foregone future management and performance fees.

The Company’s equity interests in these entities are reported in “other invested assets” on the condensed consolidated balance sheets.

The maximum exposure to loss is limited to the Company’s investment in equity interests (which is less than $ 1 million as of both March 31, 2023 and December 31, 2022) as well as foregone future management and performance fees.

See Note 10, Asset Management Fees, for earnings and receivables from managing funds and CLOs.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Fair Value Measurement

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In addition to market information, models also incorporate transaction details, such as maturity of the instrument and contractual features designed to reduce the Company’s credit exposure, such as collateral rights as applicable.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.

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As markets and products develop and the pricing for certain products becomes more or less transparent, the Company may refine its methodologies and assumptions.

During nine months 2022, no changes were made to the Company’s valuation models that had, or are expected to have, a material impact on the Company’s condensed consolidated balance sheets or statements of operations and comprehensive income.

The Company’s methods for calculating fair value produce a fair value that may not be indicative of net realizable value or reflective of future fair values.

During first quarter 2023, no changes were made to the Company’s valuation models that had, or are expected to have, a material impact on the Company’s condensed consolidated balance sheets or statements of operations and comprehensive income.

The Company’s valuation methods produce fair values that may not be indicative of net realizable value or future fair values.

The use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a materially different estimate of fair value at the reporting date.

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Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Company estimates of market assumptions.

The fair value hierarchy prioritizes model inputs into three broad levels as follows, with Level 1 being the highest and Level 3 the lowest.

An asset’s or liability’s categorization is based on the lowest level of significant input to its valuation.

The fair value hierarchy prioritizes model inputs into three broad levels, with Level 1 being the highest and Level 3 the lowest.

An asset’s or liability’s categorization within the hierarchy is based on the lowest level of significant input to its valuation.

Level 1—Quoted prices for identical instruments in active markets.

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The pricing services evaluate each asset class based on relevant market and credit information, perceived market movements, and sector news.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Benchmark yields have in many cases taken priority over reported trades for securities that trade less frequently or those that are distressed trades, and therefore may not be indicative of the market.

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The valuation of fixed-maturity securities is more subjective when markets are less liquid due to the lack of market-based inputs.

As of September 30, 2022, the Company used models to price 188 securities, including loss mitigation securities, with a Level 3 fair value of $ 1.0 billion.

As of March 31, 2023, the Company used models to price 190 securities.

All Level 3 securities were priced with the assistance of independent third parties.

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estimated default rates (determined on the basis of an analysis of collateral attributes, historical collateral performance, borrower profiles and other features relevant to the evaluation of collateral credit quality);

home price appreciation/depreciation rates based on macroeconomic forecasts and recent trading activity.

The yield used to discount the projected cash flows is determined by reviewing various attributes of the security including collateral type, weighted average life, sensitivity to losses, vintage, and convexity, in conjunction with

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

market data on comparable securities.

home price appreciation/depreciation rates based on macroeconomic forecasts;

and recent trading activity.

Significant changes to any of these inputs could have materially changed the expected timing of cash flows within these securities which is a significant factor in determining the fair value of the securities.

Short-Term Investments

Short-term investments that are traded in active markets are classified within Level 1 in the fair value hierarchy as their value is based on quoted market prices.

Securities such as discount notes are classified within Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their cost approximates fair value.

Short-term investments that are traded in active markets are classified as Level 1 as their value is based on quoted market prices.

Securities such as discount notes are classified as Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their cost approximates fair value.

Other Invested Assets

Other invested assets that are carried at fair value primarily include:

(i) equity securities traded in active markets that are classified within Level 1 in the fair value hierarchy as their value is based on quoted market prices;

and (ii) equity method investments for which the Company elected the FVO using NAV, as a practical expedient, which are excluded from the fair value hierarchy.

Other invested assets that are carried at fair value primarily include equity method investments for which the Company elected the FVO using NAV, as a practical expedient, and, therefore, are excluded from the fair value hierarchy.

Committed Capital Securities

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The estimated current cost of the Company’s CCS is based on several factors, including AGM and AGC CDS spreads, LIBOR curve projections, the Company's publicly traded debt and the term the securities are estimated to remain outstanding.

The AGC CCS and AGM CPS are classified as Level 3 in the fair value hierarchy.

The AGC CCS and AGM CPS are classified as Level 3.

Supplemental Executive Retirement Plans

The Company classifies assets included in the Company’s various supplemental executive retirement plans as either Level 1 or Level 2.

The Company classified assets included in the Company’s various supplemental executive retirement plans as either Level 1 or Level 2.

The fair value of these assets is based on the observable published daily values of the underlying mutual funds included in the plans (Level 1) or based upon the NAV of the funds if a published daily value is not available (Level 2).

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Contracts Accounted for as Credit Derivatives

The Company’s credit derivatives in the Insurance segment primarily consist of insured CDS contracts, and also include interest rate swaps that qualify as derivatives under GAAP, which require fair value measurement with changes in the fair value reported in the condensed consolidated statements of operations.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

fair value reported in the condensed consolidated statements of operations.

The Company did not enter into CDS contracts with the intent to trade these contracts and the Company may not unilaterally terminate a CDS contract absent an event of default or termination event that entitles the Company to terminate such contracts;

however, the Company has mutually agreed with various counterparties to terminate certain CDS transactions.

In transactions where the counterparty does not have the right to terminate, such transactions are generally terminated for an amount that approximates the present value of future premiums or for a negotiated amount, rather than at fair value.

In transactions where the counterparty does not have the right to terminate, such transactions were generally terminated for an amount that approximated the present value of future premiums or for a negotiated amount, rather than at fair value.

The terms of the Company’s CDS contracts differ from more standardized credit derivative contracts sold by companies outside the financial guaranty industry.

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Management considers the non-standard terms of the Company’s credit derivative contracts in determining the fair value of these contracts.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Due to the lack of quoted prices and other observable inputs for its instruments or for similar instruments, the Company determines the fair value of its credit derivative contracts primarily through internally developed, proprietary models that use both observable and unobservable market data inputs.

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Credit spreads capture the effect of recovery rates and performance of underlying assets of these contracts, among other factors.

Consistent with previous years, market conditions at September 30, 2022 were such that market prices of the Company’s CDS contracts were not available.

Consistent with previous years, market conditions at March 31, 2023 were such that market prices of the Company’s CDS contracts were not available.

Assumptions and Inputs

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• Credit spreads extrapolated based upon transactions of similar asset classes, similar ratings, and similar time to maturity.

The rates used to discount future expected premium cash flows ranged from 2.49 % to 4.62 % at September 30, 2022 and 0.11 % to 1.78 % at December 31, 2021.

The premium the Company receives is referred to as the “net spread.” The Company’s pricing model takes into account not only how credit spreads on risks that it assumes affect pricing, but also how the Company’s own credit spread affects the pricing of its transactions.

The rates used to discount future expected premium cash flows ranged from 2.59 % to 5.06 % at March 31, 2023 and 2.78 % to 5.08 % at December 31, 2022.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

affects the pricing of its transactions.

The Company’s own credit risk is factored into the determination of net spread based on the impact of changes in the quoted market price for credit protection bought on the Company, as reflected by quoted market prices on CDS referencing AGC.

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This assumption can have the effect of mitigating the amount of unrealized gains that are recognized on certain CDS contracts.

As of September 30, 2022 and December 31, 2021, the use of

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

the minimum premium did not have a significant effect on fair value.

As of March 31, 2023 and December 31, 2022, the use of the minimum premium did not have a significant effect on fair value.

The percentage of transactions that price using the minimum premiums fluctuates due to changes in AGC’s credit spreads.

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• Due to the non-standard terms under which the Company enters into derivative contracts, the fair value of its credit derivatives may not reflect the same prices observed in an actively traded market of credit derivatives that do not contain terms and conditions similar to those observed in the financial guaranty market.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

FG VIEs’ Assets and Liabilities

The Company elected the FVO for the structured finance and other FG VIEs’ assets and liabilities and classifies them as Level 3 in the fair value hierarchy.

FG VIEs include Puerto Rico Trusts and structured finance and other FG VIEs.

Assets in the Puerto Rico Trusts, which consist of New Recovery Bonds and CVIs, are classified as Level 2.

The Company elected the FVO for the Puerto Rico Trusts’ liabilities and they are classified as Level 3.

See “ - Fixed Maturity Securities” above for a description of the fair value methodology for the New Recovery Bonds and CVIs in the Puerto Rico Trusts, which represent the majority of the assets in the Puerto Rico Trusts.

For structured finance and other FG VIEs’ assets and liabilities the Company elected the FVO and they are classified as Level 3.

The prices are generally determined with the assistance of an independent third party, based on a discounted cash flow approach.

For the assets in the Puerto Rico Trusts, new recovery bonds are classified as Level 2 available-for-sale securities, and CVIs are classified as Level 2 trading securities.

The liabilities of the Puerto Rico Trusts are measured under the FVO as Level 3 on the fair value hierarchy.

See “ - Fixed Maturity Securities” above for a description of the fair value methodology for the recovery bonds and CVIs in the Puerto Rico Trusts, which represent the majority of the assets in the Puerto Rico Trusts.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The Company records the fair value of structured finance and other FG VIEs’ assets and liabilities based on modeled prices.

The fair value of the residential mortgage loan FG VIEs’ assets is generally sensitive to changes in estimated prepayment speeds;

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and, as applicable, house price depreciation/appreciation rates based on macroeconomic forecasts.

Significant changes to some of these inputs could have materially changed the market value of the FG VIEs’ assets and the implied collateral losses within the transaction.

Significant changes to some of these inputs could have materially changed the fair value of the FG VIEs’ assets and the implied collateral losses within these transactions.

In general, the fair value of the FG VIEs’ assets is most sensitive to changes in the projected collateral losses, where an increase in collateral losses typically could lead to a decrease in the fair value of FG VIEs’ assets, while a decrease in collateral losses typically leads to an increase in the fair value of FG VIEs’ assets.

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In general, extending the timing of expected loss payments by the Company into the future typically could lead to a decrease in the value of the Company’s insurance and a decrease in the fair value of the Company’s FG VIEs’ liabilities with recourse, while a shortening of the timing of expected loss payments by the Company typically could lead to an increase in the value of the Company’s insurance and an increase in the fair value of the Company’s FG VIEs’ liabilities with recourse.

The net change in the fair value of FG VIEs’ assets and liabilities is reported in “fair value gains (losses) on financial guaranty variable interest entities” in the condensed consolidated statements of operations, except for the change in fair value of FG VIEs’ liabilities with recourse caused by changes in ISCR which is separately presented in OCI, and the change in fair value of available-for-sale securities, which is reported as a component of the change in unrealized gains (losses) on investments in OCI.

Interest income and interest expense are derived from the trustee reports and also included in “fair value gains (losses) on financial guaranty variable interest entities.” The FG VIEs issued securities that are typically collateralized by first lien and second lien U.S.

residential mortgage loans, or, in the case of the Puerto Rico Trusts, the Plan Consideration received under the GO/PBA Plan.

The change in fair value of FG VIEs’ assets and liabilities is reported in “fair value gains (losses) on FG VIEs” in the condensed consolidated statement of operations, except for (i) the change in fair value attributable to change in ISCR on FG VIEs’ liabilities, and (ii) unrealized gains and losses on the New Recovery Bonds in the Puerto Rico Trusts, which are reported OCI.

Interest income and interest expense are derived from the trustee reports and also included in “fair value gains (losses) on FG VIEs.” Investment income on the New Recovery Bonds and changes in fair value on the CVIs in the Puerto Rico Trusts are all reported in “fair value gains (losses) on FG VIEs” on the condensed consolidated statement of operations.

Assets and Liabilities of CIVs

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less (2) the sum of (iii) the fair value of any beneficial interests retained by the Company (other than those that represent compensation for services), and (iv) the Company’s carrying value of any beneficial interests that represent compensation for services.

The resulting amount is allocated to the individual financial liabilities (other than the beneficial interests retained by the Company).

The resulting amount is

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

allocated to the individual financial liabilities (other than the underlying financial liabilities to the beneficial interests retained by the Company).

Prior to securitization, when loans are warehoused in an investment vehicle, such vehicle is not considered a CFE.

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Investments held by CIVs which are listed or quoted on a national securities exchange or market are valued at their last reported sale price on the date of determination.

Investments held by CIVs which are not listed or quoted on an exchange, but are traded over-the-counter, or are listed on an exchange which has no reported sales, are valued at their fair value as

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

determined by the Company, after giving consideration to third-party data generally at the average between the offer and bid prices.

Investments held by CIVs which are not listed or quoted on an exchange, but are traded over-the-counter, or are listed on an exchange which has no reported sales, are valued at their fair value as determined by the Company, after giving consideration to third-party data generally at the average between the offer and bid prices.

The methods and procedures to value these investments may include, but are not limited to:

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Level 3 assets in the CIVs include the remainder of the invested assets of consolidated funds.

Level 2 liabilities in the CIVs include senior warehouse financing debt used to fund a CLO warehouse (measured under the FVO), securities sold short and derivative liabilities.

Level 2 liabilities in the CIVs include senior warehouse financing debt used to fund a CLO warehouse (measured under the FVO).

Level 3 liabilities of the CIVs include various tranches of CLO debt, first loss subordinated warehouse financing and securitized borrowing.

Significant changes to any of the inputs described above could have a material effect on the fair value of the consolidated assets and liabilities.

Amounts recorded at fair value in the Company’s financial statements are presented in the tables below.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes to Condensed Consolidated Financial Statements (Unaudited)

Amounts recorded at fair value in the Company’s financial statements are presented in the tables below.

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

As of September 30, 2022

As of March 31, 2023

Fair Value Hierarchy

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Total assets of CIVs 94 4,529 439 5,062

Assets held for sale 1 — — 1

Other assets 60 47 33 140

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Securitized borrowing — — 28 28

Other — 1 — 1

Total liabilities of CIVs — 132 4,220 4,352

Other liabilities — 8 — 8

Liabilities held for sale — 7 — 7

Total liabilities carried at fair value $ — $ 139 $ 5,074 $ 5,213

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes to Condensed Consolidated Financial Statements (Unaudited)

Fair Value Hierarchy of Financial Instruments Carried at Fair Value

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Total fixed-maturity securities, available-for-sale — 6,099 1,020 7,119

Fixed-maturity securities, trading — 303 — 303

Short-term investments 771 39 — 810

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Equity securities and warrants — 5 297 302

Obligations of state and political subdivisions — 101 — 101

Corporate securities — — 96 96

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Warehouse financing debt — 277 36 313

Securities sold short — 41 — 41

Securitized borrowing — — 28 28

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(1) Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis.

Excludes $ 17 million and $ 19 million of equity method investments measured at fair value under the FVO using the NAV as a practical expedient as of September 30, 2022 and December 31, 2021, respectively.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

(2) Excludes $ 6 million as of both September 30, 2022 and December 31, 2021 in investments in AssuredIM Funds for which the Company records a 100% noncontrolling interest.

The consolidation of these funds results in a gross up of assets and noncontrolling interest on the consolidated financial statements;

Excludes $ 22 million and $ 23 million of equity method investments measured at fair value under the FVO using the NAV as a practical expedient as of March 31, 2023 and December 31, 2022, respectively.

(2) Excludes $ 5 million as of both March 31, 2023 and December 31, 2022, in investments in AssuredIM Funds for which the Company records a 100% NCI.

The consolidation of these funds results in a gross up of assets and NCI on the consolidated financial statements;

however, it results in no economic equity or net income attributable to AGL.

As of September 30, 2022, excludes a $ 125 million investment in the AssuredIM municipal relative value master fund, which is measured using NAV as a practical expedient.

As of December 31, 2022, excludes $ 127 million investment in the AssuredIM municipal relative value master fund, which is measured using NAV as a practical expedient.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(3) Includes FG VIEs’ liabilities with recourse and FG VIEs’ liabilities without recourse.

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Changes in Level 3 Fair Value Measurements

The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during third quarter 2022, third quarter 2021, nine months 2022, and nine months 2021.

Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis

Third Quarter 2022

The tables below present a roll forward of the Company’s Level 3 financial instruments carried at fair value on a recurring basis during first quarter 2023 and first quarter 2022.

Roll Forward of Level 3 Assets (Liabilities) at Fair Value on a Recurring Basis

First Quarter 2023

Fixed-Maturity Securities, Available-for-Sale Assets of CIVs

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(in millions)

Fair value as of June 30, 2022 $ 51 $ 184 $ 805 $ 223 $ 258 $ 90 $ 38 $ 37

Fair value as of December 31, 2022 $ 47 $ 179 $ 794 $ 204 $ 297 $ 96 $ 46 $ 50

Total pre-tax realized and unrealized gains (losses) recorded in:

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Settlements ( 1 ) ( 7 ) ( 4 ) ( 8 ) — — — —

Fair value as of September 30, 2022 $ 48 $ 192 $ 806 $ 210 $ 297 $ 87 $ 43 $ 38

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2022 included in:

Fair value as of March 31, 2023 $ 47 $ 174 $ 795 $ 197 $ 329 $ 93 $ 17 $ 34

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2023 included in:

Earnings $ — (2) $ 32 (4) $ ( 3 ) (4) $ — (4) $ ( 16 ) (3)

OCI $ 1 $ ( 1 ) $ ( 3 ) $ —

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Liabilities at Fair Value on a Recurring Basis

Third Quarter 2022

Roll Forward of Level 3 Assets (Liabilities) at Fair Value on a Recurring Basis

First Quarter 2023

Credit Derivative

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(in millions)

Fair value as of June 30, 2022 $ ( 147 ) $ ( 282 ) $ ( 3,987 )

Total pre-tax realized and unrealized gains (losses) recorded in:

Net income (loss) ( 48 ) (6) 8 (2) ( 31 ) (4)

Other comprehensive income (loss) — ( 4 ) 41

Issuances — — ( 8 )

Settlements 1 27 —

Consolidations — — ( 26 )

Fair value as of September 30, 2022 $ ( 194 ) $ ( 251 ) $ ( 4,009 )

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2022 included in:

Earnings $ ( 46 ) (6) $ 8 (2) $ ( 13 ) (4)

OCI $ ( 4 ) $ 41

Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis

Third Quarter 2021

Fixed-Maturity Securities, Available-for-Sale

Subdivisions RMBS Asset-

Securities FG VIEs’

Assets Assets of CIVs- Equity Securities Other

(in millions)

Fair value as of June 30, 2021 $ 110 $ 248 $ 975 $ 287 $ 1 $ 31

Fair value as of December 31, 2022 $ ( 162 ) $ ( 715 ) $ ( 4,154 )

Total pre-tax realized and unrealized gains (losses) recorded in:

1 unchanged sentence

Other comprehensive income (loss) — ( 1 ) ( 8 )

Purchases — — 55 — 33 —

Sales — — — — — —

Settlements ( 1 ) 9 4

Fair value as of September 30, 2021 $ 110 $ 238 $ 968 $ 271 $ 34 $ 27

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2021included in:

Fair value as of March 31, 2023 $ ( 148 ) $ ( 704 ) $ ( 4,220 )

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2023 included in:

Earnings $ 14 (6) $ ( 2 ) (2) $ ( 65 ) (4)

1 unchanged sentence

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis

Third Quarter 2021

Credit Derivative

Liability, net (5) FG VIEs’ Liabilities (8) Liabilities of CIVs

(in millions)

Fair value as of June 30, 2021 $ ( 154 ) $ ( 320 ) $ ( 2,385 )

Total pre-tax realized and unrealized gains (losses) recorded in:

Net income (loss) 21 (6) 2 (2) 4 (4)

Other comprehensive income (loss) — 2 —

Issuances — — ( 989 )

Settlements ( 1 ) 15 374

Fair value as of September 30, 2021 $ ( 134 ) $ ( 301 ) $ ( 2,996 )

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2021 included in:

Earnings $ 1 (6) $ 2 (2) $ 1 (4)

Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis

Nine Months 2022

Notes to Condensed Consolidated Financial Statements (Unaudited)

Roll Forward of Level 3 Assets (Liabilities) at Fair Value on a Recurring Basis

First Quarter 2022

Fixed-Maturity Securities, Available-for-Sale Assets of CIVs

1 unchanged sentence

Securities FG VIEs’

Assets Equity Securities and Warrants Corporate Securities Structured Products Other

(in millions)

Fair value as of December 31, 2021 $ 72 $ 216 $ 863 $ 260 $ 239 $ 91 $ — $ 27

Total pre-tax realized and unrealized gains (losses) recorded in:

Net income (loss) — 13 (1) 2 (1) — 15 (4) 4 (4) ( 6 ) (4) 12 (3)

Other comprehensive income (loss) ( 11 ) ( 27 ) ( 36 ) — — — — ( 1 )

Purchases — 22 39 — 57 2 50 —

Sales — — ( 13 ) — ( 14 ) ( 10 ) ( 21 ) —

Settlements ( 13 ) ( 32 ) ( 49 ) ( 50 ) — — — —

Consolidations — — — 15 — — — —

Deconsolidations — — — ( 15 ) — — 20 —

Fair value as of September 30, 2022 $ 48 $ 192 $ 806 $ 210 $ 297 $ 87 $ 43 $ 38

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2022 included in:

Earnings $ 1 (2) $ 7 (4) $ 3 (4) $ ( 6 ) (4) $ 12 (3)

OCI $ ( 13 ) $ ( 25 ) $ ( 35 ) $ ( 1 )

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Liabilities at Fair Value on a Recurring Basis

Nine Months 2022

Credit Derivative

Liability, net (5) FG VIEs’ Liabilities (8) Liabilities of CIVs

(in millions)

Fair value as of December 31, 2021 $ ( 154 ) $ ( 289 ) $ ( 3,705 )

Total pre-tax realized and unrealized gains (losses) recorded in:

Net income (loss) ( 42 ) (6) 34 (2) 264 (4)

Other comprehensive income (loss) — ( 1 ) 97

Issuances — — ( 1,416 )

Settlements 2 92 401

Consolidations — ( 102 ) ( 26 )

Deconsolidations — 15 374

Fair value as of September 30, 2022 $ ( 194 ) $ ( 251 ) $ ( 4,009 )

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2022 included in:

Earnings $ ( 41 ) (6) $ 57 (2) $ 289 (4)

OCI $ ( 1 ) $ 97

Roll Forward of Level 3 Assets at Fair Value on a Recurring Basis

Nine Months 2021

Fixed-Maturity Securities, Available-for-Sale

Subdivisions Corporate Securities RMBS Asset-

Securities FG VIEs’

Assets Assets of CIVs - Equity Securities Other

Assets Equity Securities Corporate Securities Other

(in millions)

7 unchanged sentences

Settlements ( 1 ) ( 12 ) ( 39 ) ( 18 ) — — —

Fair value as of September 30, 2021 $ 110 $ — $ 238 $ 968 $ 271 $ 34 $ 27

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2021 included in:

Consolidations — — — 29 — — —

Fair value as of March 31, 2022 $ 70 $ 200 $ 842 $ 267 $ 243 $ 83 $ 28

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2022 included in:

Earnings $ ( 3 ) (2) $ 8 $ ( 2 ) (4) $ 1 (3)

OCI $ ( 5 ) $ ( 7 ) $ ( 7 ) $ ( 1 ) $ —

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Roll Forward of Level 3 Liabilities at Fair Value on a Recurring Basis

Nine Months 2021

Roll Forward of Level 3 Assets (Liabilities) at Fair Value on a Recurring Basis

First Quarter 2022

Credit Derivative

9 unchanged sentences

Settlements 1 41 372

Fair value as of September 30, 2021

Consolidations — ( 102 ) —

Fair value as of March 31, 2022

$ ( 156 ) $ ( 335 ) $ ( 3,650 )

Change in unrealized gains (losses) related to financial instruments held as of September 30, 2021 included in:

Change in unrealized gains (losses) related to financial instruments held as of March 31, 2022 included in:

Earnings $ ( 3 ) (6) $ 38 (2) $ 41 (4)

10 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes to Condensed Consolidated Financial Statements (Unaudited)

Level 3 Fair Value Disclosures

Quantitative Information About Level 3 Fair Value Inputs

As of September 30, 2022

Financial Instrument Description Fair Value

As of March 31, 2023

Financial Instrument Description Fair Value Assets (Liabilities)

(in millions) Significant Unobservable Inputs Range Weighted Average (4)

Investments (2):

Fixed-maturity securities, available-for-sale (1):

20 unchanged sentences

Terminal growth rate 3.0 % - 4.0 % 3.5 %

Exit multiple-EBITDA 8.00 x

Exit multiple-price to book 1.30 x

Exit multiple-price to earnings 5.50 x

Sale scenario - discount rate 4.4 % - 5.5 % 4.9 %

Haircut to Holdback 30.0 % - 95.0 % 62.5 %

Corporate securities 93 Discount rate 20.6 % - 21.1 % 20.7 %

Exit multiple-EBITDA 8.00 x

Market multiple-enterprise value/EBITDA 2.50 x

Sale scenario - discount rate 4.4 % - 5.5 % 4.9 %

Haircut to Holdback 30.0 % - 95.0 % 62.5 %

Structured products 17 Yield 15.7 % - 26.9 % 20.8 %

2 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Financial Instrument Description Fair Value

Notes to Condensed Consolidated Financial Statements (Unaudited)

Financial Instrument Description Fair Value Assets (Liabilities)

(in millions) Significant Unobservable Inputs Range Weighted Average (4)

Liabilities (1):

Credit derivative liabilities, net (1) $ ( 148 ) Hedge cost (in bps) 15.0 - 33.0 20.6

9 unchanged sentences

Securitized borrowing ( 28 ) Discount rate 23.7 %

Terminal growth rate 3.0 %

Exit multiple-EBITDA 11.00 x

Market multiple-enterprise value/EBITDA 10.50 x

1 unchanged sentence

(1) Discounted cash flow is used as the primary valuation technique.

(2) Excludes several investments recorded in “other invested assets” with a fair value of $ 5 million.

(2) Excludes several investments reported in “other invested assets” with a fair value of $ 5 million.

(3) The primary valuation technique uses the income and/or market approach;

4 unchanged sentences

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes to Condensed Consolidated Financial Statements (Unaudited)

Quantitative Information About Level 3 Fair Value Inputs

As of December 31, 2022

Financial Instrument Description Fair Value (in millions) Significant Unobservable Inputs Range Weighted Average (4)

Financial Instrument Description Fair Value Assets (Liabilities)

(in millions) Significant Unobservable Inputs Range Weighted Average (4)

Investments (2):

Fixed-maturity securities, available-for-sale (1):

18 unchanged sentences

Market multiple-price to book 1.15 x

Market multiple-price to earnings 4.50 x

Terminal growth rate 3.0 % - 4.0 % 3.5 %

Exit multiple-EBITDA 8.00 x

Exit multiple-price to book 1.30 x

Exit multiple-price to earnings 5.50 x

Corporate securities 96 Discount rate 20.8 % - 23.8 % 21.7 %

Exit multiple-EBITDA 8.00 x

Market multiple-enterprise value/EBITDA 2.50 x

Structured products 46 Yield 12.8 % - 37.1 % 18.9 %

Other assets (1)

1 unchanged sentence

Term (years) 10 years

Liabilities (1):

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Financial Instrument Description Fair Value Assets (Liabilities)

(in millions) Significant Unobservable Inputs Range Weighted Average (4)

Credit derivative liabilities, net (1) ( 162 ) Year 1 loss estimates 11.5 % - 25.2 % 15.7 %

Hedge cost (in bps) 8.0 - 37.1 12.6

Bank profit (in bps) 51.0 - 270.5 109.4

Internal floor (in bps) 8.8

Internal credit rating AAA - CCC AA

7 unchanged sentences

Securitized borrowing ( 28 ) Discount rate 20.9 %

Market multiple-enterprise value/revenue 10.50 x

Terminal growth rate 3.0 %

Exit multiple-EBITDA 11.00 x

Market multiple-enterprise value/EBITDA 10.00 x

____________________

4 unchanged sentences

(5) See CFE fair value methodology described above for consolidated CLOs.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Not Carried at Fair Value

5 unchanged sentences

Long-term debt issued by the U.S.

Holding Companies is valued by broker-dealers using third-party independent pricing sources and standard market conventions and is classified as Level 2 in the fair value hierarchy.

Holding Companies is valued by broker-dealers using third-party independent pricing sources and standard market conventions and classified as Level 2 in the fair value hierarchy.

The market conventions utilize market quotations, market transactions for the Company’s comparable instruments, and to a lesser extent, similar instruments in the broader insurance industry.

1 unchanged sentence

Cash equivalents are recorded at cost which approximates fair value.

Due from/to brokers and counterparties primarily consists of cash, margin deposits, and cash collateral with the clearing brokers and various counterparties and the net amounts receivable/payable for securities transactions that had not settled at the balance sheet date.

Due from/to brokers and counterparties primarily consists of cash, margin deposits, cash collateral with the clearing brokers and various counterparties and the net amounts receivable/payable for securities transactions that had not settled at the balance sheet date.

Due from/to brokers and counterparties represents balances on a net-by counterparty basis on the condensed consolidated balance sheets where a contractual right of offset exists under an enforceable netting arrangement.

2 unchanged sentences

The carrying value approximates fair value of these items and are considered Level 1 in the fair value hierarchy.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Other Liabilities

Other liabilities in the table below include $ 32 million and $ 37 million as of September 30, 2022 and December 31, 2021, respectively, for AssuredIM’s obligation under a master repurchase agreement to finance AssuredIM’s purchase of 5 % of the senior and equity notes issued by certain BlueMountain European CLOs, which was required to comply with its European risk retention obligations.

As of March 31, 2023 and December 31, 2022, $ 36 million and $ 35 million, respectively, of AssuredIM’s obligation under a master repurchase agreement to finance AssuredIM’s purchase of 5 % of the senior and equity notes issued by certain consolidated European CLOs, which was required to comply with its European risk retention obligations, were included in “liabilities held for sale” and “other liabilities”, respectively.

The maturity dates are in 2034 and 2035.

AssuredIM’s obligation under the master repurchase agreement is not guaranteed by any Assured Guaranty insurance or holding companies.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

The carrying amount and estimated fair value of the Company’s financial instruments not carried at fair value are presented in the following table.

Fair Value of Financial Instruments Not Carried at Fair Value

As of September 30, 2022 As of December 31, 2021

As of March 31, 2023 As of December 31, 2022

Amount Estimated

4 unchanged sentences

Assets of CIVs (1) $ 64 $ 64 $ 46 $ 46

Assets held for sale 10 10 — —

Other assets (including other invested assets) (2) 101 102 92 93

2 unchanged sentences

Liabilities of CIVs (4) ( 102 ) ( 102 ) ( 170 ) ( 170 )

Liabilities held for sale ( 36 ) ( 36 ) — —

Other liabilities (5) ( 33 ) ( 33 ) ( 43 ) ( 43 )

2 unchanged sentences

Carrying value approximates fair value.

(2) Primarily includes accrued interest, receivable for an unsettled sale of a portion of the Puerto Rico salvage and subrogation recoverable, management fees receivables and receivables for securities sold for which carrying value approximates fair value.

(2) Primarily includes accrued interest, management fees receivables for December 31, 2022, a participation loan, and receivables for securities sold, for which carrying value approximates fair value.

(3) Carrying amount includes the assets and liabilities related to financial guaranty insurance contract premiums, losses, and salvage and subrogation and other recoverables net of reinsurance.

1 unchanged sentence

Carrying value approximates fair value.

(5) Primarily includes accrued interest, repurchase agreement liability and payables for securities purchased for which carrying value approximates fair value.

(5) Primarily includes accrued interest, repurchase agreement liability as of December 31, 2022, and payables for securities purchased for which carrying value approximates fair value.

Asset Management Fees

1 unchanged sentence

Asset Management Fees

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

7 unchanged sentences

Total asset management fees $ 26 $ 34

The Company had management and performance fees receivable, which are included in other assets on the condensed consolidated balance sheets, of $ 10 million as of September 30, 2022 and $ 8 million as of December 31, 2021.

Performance fees in nine months 2022 were attributable to the healthcare and asset-based funds.

_____________________

(1) To the extent that the Company’s wind-down and/or opportunity funds are invested in AssuredIM managed CLOs, AssuredIM may rebate any management fees and/or performance fees earned from the CLOs.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Long-Term Debt and Credit Facilities

On May 26, 2021, AGUS issued $ 500 million of 3.15 % Senior Notes due 2031 ( 3.15 % Senior Notes) for net proceeds of $ 494 million.

On August 20, 2021, AGUS issued $ 400 million of 3.600 % Senior Notes due 2051 ( 3.6 % Senior Notes) for net proceeds of $ 395 million.

On July 9, 2021, a portion of the proceeds from the issuance of the 3.15 % Senior Notes was used to redeem $ 200 million of AGMH debt as follows:

all $ 100 million of AGMH’s 6 7/8% Quarterly Interest Bonds due in 2101, and $ 100 million of the $ 230 million of AGMH’s 6.25 % Notes due in 2102.

On September 27, 2021, all of the proceeds from the issuance of the 3.6 % Senior Notes were used to redeem $ 400 million of AGMH and AGUS debt as follows:

all $ 100 million of AGMH's 5.60 % Notes due in 2103, the remaining $ 130 million of AGMH 6.25 % Notes due in 2102, and $ 170 million of the $ 500 million of AGUS 5 % Senior Notes due in 2024.

In third quarter 2021, as a result of these redemptions, the Company recognized a loss on extinguishment of debt of approximately $ 175 million on a pre-tax basis ($ 138 million after-tax) which represents the difference between the amount paid to redeem the debt and the carrying value of the debt.

The loss on extinguishment of debt primarily consisted of a $ 156 million acceleration of unamortized fair value adjustments that were originally recorded upon the acquisition of AGMH in 2009, and a $ 19 million make-whole payment associated with the redemption of $ 170 million of AGUS 5 % Senior Notes.

On February 3, 2022, the Company entered into a secured short-term loan facility with a major financial institution to partially fund gross payments in connection with the resolution of a portion of its Puerto Rico exposures.

See Note 3, Outstanding Exposure.

The short-term loan facility permitted the Company to borrow up to $ 550 million for up to thirty days and up to $ 150 million for up to six months .

The Company borrowed $ 400 million under the thirty days portion of this facility on March 14, 2022, and repaid it in full, with interest, on March 16, 2022.

The Company did not borrow any amounts under the six months portion of the facility.

The one month component bore interest at 1.10 % per annum.

The ability of the Company to borrow under the facility has expired.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company had management and performance fees receivable of $ 10 million as of both March 31, 2023 and December 31, 2022.

These balances are in “assets held for sale” and “other assets” on the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.

Performance fees were attributable to the healthcare and asset-based funds.

AGL and its Bermuda subsidiaries AG Re, AGRO and Cedar Personnel Ltd.

5 unchanged sentences

In addition, AGRO, a Bermuda domiciled company, has elected under Section 953(d) of the U.S.

Internal Revenue Code (the Code) to be taxed as a U.S.

Internal Revenue Code to be taxed as a U.S.

domestic corporation.

4 unchanged sentences

Assured Guaranty Overseas US Holdings Inc.

and its subsidiaries AGRO and AG Intermediary Inc.

file their own consolidated federal income tax return.

On August 16, 2022, the U.S.

enacted the Inflation Reduction Act of 2022 (the IRA), which, among other things, implemented a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases that occur after December 31, 2022, and several tax incentives to promote clean energy.

Currently, we do not believe that this new minimum tax nor the other income tax provisions of the IRA will have a material impact on our consolidated financial statements.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

and its subsidiaries, AGRO and AG Intermediary Inc., file their own consolidated federal income tax return.

Tax Assets (Liabilities)

Deferred and Current Tax Assets (Liabilities)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in millions)

1 unchanged sentence

Net current tax assets (liabilities) 49 63

____________________

(1) Included in “other assets” or “other liabilities” on the condensed consolidated balance sheets.

Valuation Allowance

During third quarter 2022, the Company recorded a return to provision adjustment, which included the utilization of $ 19 million in foreign tax credits, thereby reducing the Company's foreign tax credits (FTC) from $ 24 million as of December 31, 2021 to $ 5 million as of September 30, 2022.

FTCs were established under the 2017 Tax Cuts and Jobs Act (TCJA) for use against regular tax in future years, and will expire in 2027.

As of March 31, 2023 and December 31, 2022, the Company had $ 5 million in foreign tax credits (FTCs) due to the 2017 Tax Cuts and Jobs Act for use against regular tax in future years.

FTCs will expire in 2027.

In analyzing the future realizability of FTCs, the Company notes limitations on future foreign source income due to overall foreign losses as negative evidence.

After reviewing positive and negative evidence, the Company came to the conclusion that it is more likely than not that the remaining FTC of $ 5 million will not be utilized, and therefore maintained a valuation allowance with respect to this tax attribute, resulting in a decrease in the valuation allowance from $ 24 million as of December 31, 2021 to $ 5 million as of September 30, 2022.

After reviewing positive and negative evidence, the Company came to the conclusion that it is more likely than not that the remaining FTCs of $ 5 million will not be utilized, and therefore maintained the valuation allowance from December 31, 2022 with respect to this tax attribute.

The Company came to the conclusion that it is more likely than not that the remaining deferred tax assets will be fully realized after weighing all positive and negative evidence available as required under GAAP.

3 unchanged sentences

The Company will continue to analyze the need for a valuation allowance on a quarterly basis.

Changes in market conditions during 2023 and 2022, including rising interest rates, resulted in the recording of deferred tax assets related to net unrealized tax capital losses.

When assessing recoverability of these deferred tax assets, the Company considers the ability and intent to hold the underlying securities to recovery in value, if necessary, as well as other factors as noted above.

As of March 31, 2023 and December 31, 2022, based on all available evidence, including capital loss carryback capacity, the Company concluded that the deferred tax assets related to the unrealized tax capital losses on the available-for-sale securities portfolios are, more likely than not, expected to be realized.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Provision for Income Taxes

3 unchanged sentences

subsidiaries taxed at the U.S.

marginal corporate income tax rate of 21 %, U.K.

subsidiaries taxed at the U.K.

marginal corporate tax rate of 19 %, the French subsidiary taxed at the French marginal corporate tax rate of 25 % in 2022 and 27.5 % in 2021, and no taxes for the Company’s Bermuda Subsidiaries unless subject to U.S.

marginal corporate income tax rate of 21 % and the French subsidiary taxed at the French marginal corporate tax rate of 25 %, and no taxes for the Company’s Bermuda Subsidiaries unless subject to U.S.

tax by election.

For the periods between April 1, 2017 and March 31, 2023, the U.K.

corporation tax rate was 19 %.

For periods subsequent to April 1, 2023, the U.K.

corporation tax rate has been increased to 25 %.

For the full year 2023, the U.K.

subsidiaries will be taxed at the U.K.

blended marginal corporate tax rate of 23.5 %.

The Company’s overall effective tax rate fluctuates based on the distribution of income across jurisdictions.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

A reconciliation of the difference between the provision for income taxes and the expected tax provision at statutory rates in taxable jurisdictions is presented below.

Effective Tax Rate Reconciliation

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

1 unchanged sentence

Tax-exempt interest ( 3 ) ( 3 )

Noncontrolling interest 1 — ( 5 ) ( 2 )

Return to provision adjustment ( 20 ) ( 4 ) ( 20 ) ( 4 )

NCI ( 3 ) ( 2 )

State taxes 3 4

Foreign taxes 5 1

Taxes on reinsurance — ( 4 ) ( 1 ) ( 1 )

Stock based compensation 1 2

Other — — 1 ( 1 )

Total provision (benefit) for income taxes $ 23 $ 18

4 unchanged sentences

Pre-tax Income (Loss) by Tax Jurisdiction

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

$ 3 $ ( 10 ) $ 112 $ 92

Bermuda 25 27

2 unchanged sentences

Total $ 120 $ 93

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Revenue by Tax Jurisdiction

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions)

$ 60 $ 181 $ 435 $ 465

Bermuda 35 33

( 21 ) ( 1 ) ( 39 ) 29

Other — ( 2 )

1 unchanged sentence

Pre-tax income by jurisdiction may be disproportionate to revenue by jurisdiction to the extent that insurance losses incurred are disproportionate.

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

As of September 30, 2022, AGUS and Assured Guaranty Overseas US Holdings Inc.

had open tax years with the U.S.

Internal Revenue Service (IRS) for 2018 forward and AGUS is currently under audit for the 2018 and 2019 tax years.

In September 2022, Her Majesty's Revenue & Customs completed a business risk review of Assured Guaranty that commenced in July 2022 and assigned a low-risk rating for corporate taxes.

As of March 31, 2023, AGUS had open tax years with the U.S.

Internal Revenue Service (IRS) for 2018 forward and is currently under audit for the 2018 and 2019 tax years.

As of March 31, 2023, Assured Guaranty Overseas US Holdings Inc.

had open tax years with the IRS for 2019 forward and is not currently under audit with the IRS.

In September 2022, His Majesty’s Revenue & Customs completed a business risk review of Assured Guaranty that commenced in July 2022 and assigned a low-risk rating for corporate taxes in the U.K.

The Company’s French subsidiary is not currently under examination and has open tax years of 2019 forward.

2 unchanged sentences

Lawsuits arise in the ordinary course of the Company’s business.

It is the opinion of the Company’s management, based upon the information available, that the expected outcome of litigation against the Company, individually or in the aggregate, will not have a material adverse effect on the Company’s financial position or liquidity, although an adverse resolution of litigation against the Company in a fiscal quarter or year could have a material adverse effect on the Company’s results of operations in a particular quarter or year.

It is the opinion of the Company’s management, based upon the information available, that the expected outcome of litigation against the Company, individually or in the aggregate, will not have a material adverse effect on the Company’s financial position, although an adverse resolution of litigation against the Company in a fiscal quarter or year could have a material adverse effect on the Company’s results of operations or liquidity in a particular quarter or year.

In addition, in the ordinary course of their respective businesses, certain of AGL’s insurance subsidiaries are involved in litigation with third parties to recover insurance losses paid in prior periods or prevent or reduce losses in the future.

For example, the Company is involved in a number of legal actions in the Federal District Court for Puerto Rico to enforce or defend its rights with respect to the obligations it insures of Puerto Rico and various of its related authorities and public corporations.

For example, the Company is involved in a number of legal actions in the Federal District Court of Puerto Rico to enforce or defend its rights with respect to the obligations it insures of Puerto Rico and various of its related authorities and public corporations.

See “Exposure to Puerto Rico” section of Note 3, Outstanding Exposure, for a description of such actions.

1 unchanged sentence

In first quarter 2023, the Company reduced its previously recorded accrual of $ 20 million to zero in connection with developments in litigation.

The Company also receives subpoenas and interrogatories from regulators from time to time.

2 unchanged sentences

AGC acts as the credit support provider of AGFP under these CDS.

LBIE’s complaint, which was filed in the Supreme Court of the State of New York (the Supreme Court), asserted a claim for breach of the implied covenant of good faith and fair dealing based on AGFP's termination in December 2008 of nine credit derivative transactions between LBIE and AGFP and asserted claims for breach of contract and breach of the implied covenant of good faith and fair dealing based on AGFP’s termination in July 2008 of 28 other credit derivative transactions between LBIE and AGFP and AGFP’s calculation of the termination payment in connection with those 28 other credit derivative transactions.

Following defaults by LBIE, AGFP properly terminated the transactions in question in compliance with the agreement between AGFP and LBIE, and calculated the termination payment properly.

AGFP has calculated that LBIE owes AGFP approximately $ 4 million for the claims which were dismissed and approximately $ 21 million in connection with the termination of the other credit derivative transactions, whereas LBIE asserted in the complaint that AGFP owes LBIE a termination payment of approximately $ 1.4 billion.

LBIE’s complaint, which was filed in the Supreme Court of the State of New York (the Court), asserted a claim for breach of the implied covenant of good faith and fair dealing based on AGFP's termination in December 2008 of nine credit derivative transactions between LBIE and AGFP and asserted claims for breach of contract and breach of the implied covenant of good faith and fair dealing based on AGFP’s termination in July 2008 of 28 other credit derivative transactions between LBIE and AGFP and AGFP’s calculation of the termination payment in connection with those 28 other credit derivative transactions.

Following defaults by LBIE, AGFP properly terminated the

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

transactions in question in compliance with the agreement between AGFP and LBIE, and calculated the termination payment properly.

AGFP has calculated that LBIE owes AGFP approximately $ 4 million for the claims which were dismissed (as described below) and approximately $ 21 million in connection with the termination of the other credit derivative transactions, whereas LBIE asserted in the complaint that AGFP owes LBIE a termination payment of approximately $ 1.4 billion.

AGFP filed a motion to dismiss the claims for breach of the implied covenant of good faith in LBIE’s complaint, and on March 15, 2013, the Court granted AGFP’s motion to dismiss in respect of the count relating to the nine credit derivative transactions and narrowed LBIE’s claim with respect to the 28 other credit derivative transactions.

LBIE’s administrators disclosed in an April 10, 2015 report to LBIE’s unsecured creditors that LBIE’s valuation expert has calculated LBIE’s claim for damages in aggregate for the 28 transactions to range between a minimum of approximately $ 200 million and a maximum of approximately $ 500 million, depending on what adjustment, if any, is made for AGFP's credit risk.

In addition, LBIE seeks prejudgment interest from the time of termination onwards.

AGFP filed a motion for summary judgment on the remaining causes of action asserted by LBIE and on AGFP’s counterclaims, and on July 2, 2018, the court granted in part and denied in part AGFP’s motion.

The court dismissed, in its entirety, LBIE’s remaining claim for breach of the implied covenant of good faith and fair dealing and also dismissed LBIE’s claim for breach of contract solely to the extent that it is based upon AGFP’s conduct in connection with the auction.

With respect to LBIE’s claim for breach of contract, the court held that there are triable issues of fact regarding whether AGFP calculated its loss reasonably and in good faith.

On October 1, 2018, AGFP filed an appeal with the Appellate Division of the Supreme Court of the State of New York, First Judicial Department, seeking reversal of the portions of the

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

lower court’s ruling denying AGFP’s motion for summary judgment with respect to LBIE’s sole remaining claim for breach of contract.

On January 17, 2019, the Appellate Division affirmed the Supreme Court’s decision, holding that the lower court correctly determined that there are triable issues of fact regarding whether AGFP calculated its loss reasonably and in good faith.

A bench trial was held before Justice Melissa A.

Crane of the New York Supreme Court from October 18 through November 19, 2021.

Post-trial briefing was completed on June 21, 2022, and a decision is anticipated in the fourth quarter of 2022.

In addition, LBIE sought prejudgment interest from the time of termination onwards.

A bench trial before Supreme Court Justice Melissa A.

Crane was held from October 18 through November 19, 2021.

On March 8, 2023, Justice Crane rendered her decision and found in favor of AGFP.

On April 12, 2023, AGFP requested entry of judgment in its favor.

The Court heard argument on that request on May 9, 2023, and the request is under consideration.

The Company continues to evaluate developments related to this case including any issues associated with a potential appeal by the plaintiff.

Shareholders’ Equity

Other Comprehensive Income

The following tables present the changes in each component of AOCI and the effect of reclassifications out of AOCI into the respective lines in the condensed consolidated statements of operations.

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Third Quarter 2022

Net Unrealized Gains (Losses) on Investments with:

FG VIEs’ Liabilities with Recourse Cumulative

Adjustment Cash Flow

Hedge Total AOCI

No Credit Impairment Credit Impairment

(in millions)

Balance, June 30, 2022 $ ( 205 ) $ ( 107 ) $ ( 19 ) $ ( 45 ) $ 6 $ ( 370 )

Other comprehensive income (loss) before reclassifications ( 286 ) ( 1 ) ( 3 ) ( 4 ) — ( 294 )

Amounts reclassified from AOCI to:

Net realized investment gains (losses)

( 11 ) ( 3 ) — — — ( 14 )

Fair value gains (losses) on FG VIEs

Total before tax

( 11 ) ( 3 ) — — — ( 14 )

Tax (provision) benefit

Total amount reclassified from AOCI, net of tax ( 9 ) ( 3 ) — — — ( 12 )

Other comprehensive income (loss) ( 277 ) 2 ( 3 ) ( 4 ) — ( 282 )

Balance, September 30, 2022 $ ( 482 ) $ ( 105 ) $ ( 22 ) $ ( 49 ) $ 6 $ ( 652 )

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Third Quarter 2021

Net Unrealized Gains (Losses) on Investments with:

FG VIEs’ Liabilities with Recourse Cumulative

Adjustment Cash Flow

Hedge Total AOCI

No Credit Impairment Credit Impairment

(in millions)

Balance, June 30, 2021 $ 509 $ ( 12 ) $ ( 23 ) $ ( 36 ) $ 7 $ 445

Other comprehensive income (loss) before reclassifications ( 69 ) ( 2 ) 1 — — ( 70 )

Amounts reclassified from AOCI to:

Net realized investment gains (losses)

( 3 ) 5 — — — 2

Fair value gains (losses) on FG VIEs

— — ( 1 ) — — ( 1 )

Interest expense — — — — 1 1

Total before tax

( 3 ) 5 ( 1 ) — 1 2

Tax (provision) benefit

— ( 1 ) — — — ( 1 )

Total amount reclassified from AOCI, net of tax ( 3 ) 4 ( 1 ) — 1 1

Other comprehensive income (loss) ( 66 ) ( 6 ) 2 — ( 1 ) ( 71 )

Balance, September 30, 2021 $ 443 $ ( 18 ) $ ( 21 ) $ ( 36 ) $ 6 $ 374

The following tables present the changes in each component of accumulated other comprehensive income (AOCI) and the effect of reclassifications out of AOCI into the respective lines in the condensed consolidated statements of operations.

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Nine Months 2022

First Quarter 2023

Net Unrealized Gains (Losses) on Investments with:

14 unchanged sentences

Tax (provision) benefit

( 1 ) 1 — — — —

Total amount reclassified from AOCI, net of tax 2 ( 4 ) ( 1 ) — — ( 3 )

Other comprehensive income (loss) 89 5 ( 1 ) 2 — 95

Balance, September 30, 2022 $ ( 482 ) $ ( 105 ) $ ( 22 ) $ ( 49 ) $ 6 $ ( 652 )

Balance, March 31, 2023 $ ( 254 ) $ ( 105 ) $ ( 24 ) $ ( 43 ) $ 6 $ ( 420 )

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes to Condensed Consolidated Financial Statements (Unaudited)

Changes in Accumulated Other Comprehensive Income (Loss) by Component

Nine Months 2021

First Quarter 2022

Net Unrealized Gains (Losses) on Investments with:

8 unchanged sentences

Net realized investment gains (losses)

( 1 ) ( 5 ) — — — ( 6 )

Fair value gains (losses) on FG VIEs

— — ( 1 ) — — ( 1 )

Interest expense — — — — 1 1

Total before tax

1 unchanged sentence

Tax (provision) benefit

( 1 ) — 1 — — —

Total amount reclassified from AOCI, net of tax ( 1 ) ( 4 ) ( 1 ) — — ( 6 )

Other comprehensive income (loss) ( 338 ) ( 39 ) — ( 1 ) — ( 378 )

Balance, September 30, 2021 $ 443 $ ( 18 ) $ ( 21 ) $ ( 36 ) $ 6 $ 374

Balance, March 31, 2022 $ 37 $ ( 63 ) $ ( 21 ) $ ( 37 ) $ 6 $ ( 78 )

Share Repurchases

On August 3, 2022, the Board of Directors (the Board) authorized the repurchase of an additional $ 250 million of its common shares.

Under this and previous authorizations, as of November 7, 2022, the Company was authorized to purchase $ 261 million of its common shares.

As of May 9, 2023, the Company was authorized to purchase $ 201 million of its common shares.

The Company expects to repurchase shares from time to time in the open market or in privately negotiated transactions.

The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the Company’s capital position, legal requirements and other factors.

The repurchase program may be modified, extended or terminated by the Board at any time.

The repurchase program may be modified, extended or terminated by the Board of Directors at any time.

It does not have an expiration date.

7 unchanged sentences

Total 2022 8,847,981 $ 503 56.79

2022 (January 1 - March 31) (1) 2,738,223 155 56.62

2022 (April 1 - June 30) 2,605,947 151 58.03

2022 (July 1 - September 30) 1,790,395 97 53.77

2022 (October 1 - November 7) 785,863 42 53.99

Total 2022 7,920,428 $ 445 56.18

____________________

(1) Includes $ 3 million of share repurchases that was prepaid in December 2021 and settled in the first quarter of 2022.

2023 (January 1 - May 9) 36,369 2 62.23

Assured Guaranty Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

Notes to Condensed Consolidated Financial Statements (Unaudited)

Earnings Per Share

Computation of Earnings Per Share

Third Quarter Nine Months

2022 2021 2022 2021

First Quarter

(in millions, except per share amounts)

10 unchanged sentences

Dilutive securities:

Options and restricted stock awards 1.2 0.9 1.2 0.8

Restricted stock awards 1.3 1.1

Diluted shares 60.4 67.4

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements